JSW Steel in talks with SBI for Stemcor bid

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final date of submitting a binding bid for the UK-based Stemcor's India assets is November 18. final date of submitting a binding bid for the UK-based Stemcor's India assets is November 18.
SummaryTata Steel, Aditya Birla Group, Essar Steel, Bhushan Steel also in race for Stemcor India's assets.

JSW Steel, which is in the race along with some other steel firms to acquire Stemcor India’s assets, has started talks with the State Bank of India and a few other banks for funding the deal in case it wins the bid.

The final date of submitting a binding bid for the UK-based company’s India assets is November 18 and apart from JSW Steel, Tata Steel, the Aditya Birla Group, Essar Steel and Bhushan Steel are expected to put in their bids.

“While there is no final figure on the valuation of the deal, the price of the asset is expected to be in the range of $800-1,000 million (Rs 5,000-6,000 crore),” an official from one of the bidding companies said.

In fact, analysts say JSW Steel is expected to be the most aggressive bidder for the assets as it is in severe paucity of iron ore reserves for its flagship Vijaynagar plant and its upcoming Salboni plant in West Bengal. “The company is highly leveraged but at the same time it is hungry for assets, too. If the deal goes past a billion dollars, I think it will be very expensive for the company,” an analyst with an international brokerage said.

While JSW Steel had posted poor net performance for the second quarter, analysts say the company is operationally still better than its peers, despite any backward integration to its steel plant. In fact, operationally the company had seen its sales and margins increase this quarter and has been incrementally increasing its output from its Vijayanagar plant too.

For the month ended October 2013, the company posted a 39% jump in production at 10.62 lakh tonne, against 7.62 lakh tonne in October 2012. It also has a better debt:equity ratio of 1.44 compared with other bidders such as Tata Steel at 1.58 and Bhushan Steel at 2.90. Only, Jindal Steel and Power has a better ratio of 1.05 than JSW Steel.

Stemcor has two main assets in India with substantial investments in Orissa — Brahmani River Pellets (BRPL), a 4 mtpa beneficiation plant in Barbil, and a pellet plant complex in Jajpur. It also has a majority stake in Aryan Mining and Trading. It has a 10% equity stake in Mideast Integrated Steel, which has an iron ore mine at Roida, Orissa, with current output of 44 mtpa.

According to information from Stemcor, the high grade fines from the MISL mines are sold mainly to the Chinese market while medium grade lump ore is consumed by regional sponge iron producers in India, while low grade fines are stockpiled for future conversion to pellets at BRPL.

For JSW Steel, these mines are strategically located as the company has proposed to come up with a 10 mtpa value added steel plant in West Bengal, with its joint venture Japanese partner JFE. However, so far no iron ore mine has been allocated to the company and hence it is going slow with the project.

In its annual report, Sajjan Jindal, chairman and managing director of the JSW Group had told shareholders that once iron ore sourcing is tied up for the West Bengal plant, project work will be further expedited.

While a mail sent to JSW Steel and Stemcor remained unanswered, joint managing director Sheshagiri Rao, during the company’s recently concluded second quarter results press conference had said the company is “very serious” about the deal.

In fact, most companies are vying amongst each other mainly due to Stemcor’s claim to an operational iron ore asset.

Stemcor in September had run into a legal tussle with the ICICI Bank which had appealed in the Calcutta High Court that the company should not be allowed to sell the assets as they are offered as collateral against a loan of R587 crore taken from the bank.

The case will come up for hearing on December 6.

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