The conclusion of this related party transaction, however, is subject to several approvals.
The board of Jindal Steel and Power (JSPL) on Tuesday approved the divestment of its 96.4% stake in the company’s subsidiary Jindal Power (JPL) for Rs 3,015 crore to Worldone Private, which is owned by JSPL’s promoter group.
Apart from reducing debt by around Rs 5,000 crore, this deal will help JSPL focus on its steel-making operations with a deleveraged balance sheet and do away with capex liabilities of around Rs 2,500 crore related to environmental compliance. The conclusion of this related party transaction, however, is subject to several approvals.
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JPL runs coal-based thermal power plants with cumulative installed capacity of 3,400 megawatt (MW) in Tamnar, Chhattisgarh. The company won Chhattisgarh’s Gare Palma IV/1 block in the maiden auction for commercial coal mines in November 2020. Recently it appointed former Coal India chief Anil Kumar Jha as its new chairman. The coal block is located close to JSPL’s Raigarh steel plant and the Tamnar power plant.
The upper management of JSPL has reiterated several time its target to reduce net debt to Rs 15,000 crore by FY23-end. JSPL has also indicated that will not incur any capex till it reaches targeted debt levels. At the end of September 2020, after JSPL sold its 49% stake Oman-based steel business, the company’s net debt stood at around Rs 28,900 crore. JSPL had earlier entered into a definitive agreement to sell a 1,000 MW thermal power plant from JPL portfolio to JSW Energy, but the deal was not completed.
“Looking to the future, JSPL will be a key growth driver in the Indian steel industry and will now focus on undertaking expansion of its Angul steel plant from 6 million tonnes per annum (MTPA) to 12 MTPA,” VR Sharma, the company’s managing director said.
Analysts at Investec Capital Services noted that “(JSPL’s) management has walked the talk on balance sheet deleveraging, and we would be interested to see timelines on capex, target balance sheet ratios and technology adoption from an environmental, social, and corporate governance perspective”.