FE was the first to break the story of JFEs plans to acquire stake in JSW Steel in its edition dated March 12.
JSW Steel had Rs 17,700 crore debt as on June 30, with a consolidated net gearing of 1.7:1. Seshagiri Rao, joint MD and group CFO of JSW Steel said: We expect our debt-equity ratio to be 0.5:1 post the deal. He did not specify by how much the debt will come down. The JSW Steel scrip fell 0.81% to close at Rs 1160.65 on the Bombay Stock Exchange on Tuesday, while the benchmark 30-share Sensex rose 0.32%.
JFE and JSW had agreed in November 2009 on a strategic tie-up with details to be decided later. While the 14.99% stake wont give JFE control over JSWs management, the investment will cement a partnership that will give the Japanese steelmaker way to tap the Indian market without building its own mills.
Said Sajjan Jindal, vice-chairman and MD of JSW Steel: The definitive agreement with JFE represents a game-changing milestone in JSWs evolution from a strategic and financial perspective. The deal with JFE will not only bring in equity for the company but also technology that we are looking for as our country grows. Jindal denied the possibility of JFE acquiring more than 14.99% in JSW Steel.
Shigeru Ogura, vice-president, JFE said at a press conference in Tokyo that the company could no longer count on domestic demand, with its population on a steady decline. India is an appropriate market for expansion, he said.
JFEs larger domestic rival Nippon Steel too is looking beyond its borders for growth. Nippon Steel and Tata Steel plan to jointly spend as much as 35 billion yen for a joint venture to produce automobile steel in India.
According to the subscription agreement, JFE will make an initial investment of more than Rs 4,800 crore in JSW Steel. If JSWs market price exceeds Rs 1,365 per share for at least five consecutive trading days until August 31, JSW would issue 32 million shares to JFE at a conversion price of Rs 1,500 a share. However, if the share price remains below the Rs 1,365-level until August 31, JSW would issue one fully convertible debenture with a face value of Rs 4,800 crore.
The fully convertible debentures to JFE Holdings can be converted into equity shares at a conversion price of Rs 1,500 per share in 18 months. However, the conversion price will depend on the market price of JSW shares.
According to Jindal, JFE will have the right to nominate a non-executive, non-retiring member to the board of directors of JSW. Moreover, pursuant to these anti-dilution rights, JFE shall simultaneously subscribe to equity securities upon conversion of outstanding warrants and FCCBs in order to maintain its shareholding (14.99%). This would bring in additional Rs 300 crore if FCCBs are converted. There is a potential of equity infusion of Rs 5,700 crore, the company said.
The promoters holding will come down to 42.5% post the deal from 44.99% currently. If the FCCBs get converted, promoters holding will further reduce to 40%, said Seshagiri Rao. When asked whether JSW will invest stake in JFE, Jindal said both the companies are still at a discussion stage on this. However, currently JFE will help JSW in developing its green field projects in West Bengal and Jharkhand.
Nomura Holdings advised JFE, while Citigroup and Amarchand & Mangaldas & Suresh A Shroff & Co advised JSW.