India's JSW Steel to Raise $1.4 Billion in Debt for Steel and Power Venture in West Bengal

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Researched by Industrial Info Resources (Sugar Land, Texas)--Indian steelmaker JSW Steel Limited (BSE:500228) (Mumbai), a part of JSW Group (Mumbai), plans to raise $1.4 billion through debt for financing the $2.2 billion first phase of its steel project in Salboni, in the West Midnapore district of West Bengal. The project is part of the JSW Group's steel-cum-power venture in Salboni, entailing a 10 million-ton-per-year steel plant and a 1,600-megawatt (MW) power plant, at a total investment of $7.5 billion.

The firm aims to attain financial closure for the power project by October 2010 and for the steel plant by March 2011. Construction of the steel plant is expected to begin in April 2011. The first phase of the steel project, with a capacity of 3 million tons per year, is scheduled for completion in 2014-15. About 60% to 65% of the total cost will be funded through debt, while the balance will be funded through equity. The power plant, consisting of two units of 800 MW each, is estimated to entail an investment of $1.65 billion and will be funded in a debt-to-equity ratio of 3:1. The power plant is scheduled to commence operations in February 2015, before the first phase of the steel facility comes online.

JSW Bengal Steel Limited (Kolkata, West Bengal), a subsidiary of JSW Steel, and JSW Energy Limited (Bangalore, Karnataka) plan to float a 74:26 special-purpose vehicle for the power venture. JSW Bengal Steel is an 89:11 alliance between JSW Steel and the state government of West Bengal. Electricity generated from the power unit will be fed to the steel plant, and surplus power will be fed to the state grid.

All the requisite clearances for the project have been attained, including environmental clearance from the central government. The firm also has acquired coal mines in the Asansol-Raniganj region, including coking coal mines in Kulti and Sitarampur, thermal coal mines in Icchapur, and the Gourangdih ABC thermal coal mine near Asansol. However, these mines have coal reserves at depths of more than 800 meters, and the firm is reportedly banking on Chinese technology for coal extraction. The West Bengal irrigation department has allotted 25 million gallons per day of water from the Rupnarayan River for the project.

Although JSW Energy is developing a supercritical power equipment manufacturing unit in Chennai, Tamil Nadu, in a joint venture with Toshiba Plant Systems & Services Corporation (TYO:1983) (Yokohama, Japan), the firm has not firmed up plans to procure equipment for the upcoming facility for its power venture in Salboni. The firm intends to follow the international competitive bidding route to procure main plant packages for power ventures, including the one in Salboni.

In January 2007, JSW Steel entered into a memorandum of understanding with the state government of West Bengal for setting up a steel plant with a capacity of 10 million tons per year at an investment of $7.5 billion in three phases over a period of 12 years. The foundation stone for the project was laid in November 2008. At the time, the first phase of the project, with a capacity of 3 million tons per year and investment of $2.2 billion, was scheduled to be ready by 2012. The second phase, with a capacity of 6 million tons per year, was to be developed by 2015, followed by the third phase of 1 million tons per year to be established by 2020. However, the project was delayed, as the firm could not attain financial closure due to the global financial crisis.

The first phase of the steel-cum-power venture was originally estimated to cost $3.2 billion, but with the power project being transferred to the special-purpose vehicle, the costs have been reduced by about $750 million. The first phase will include development of coal mines, iron ore pelletization and beneficiation units, a blast furnace, a coke oven, a sinter plant, a steel melting shop, and a rolling mill. JSW Steel already has acquired about 5,000 acres of land required for the venture, including 4,500 acres procured from the state government and the remainder procured from private landowners.

In August 2008, the state government of West Bengal accorded the Special Economic Zone (SEZ) status to the steel venture. JSW Steel had applied for the SEZ status in September 2007 to render its venture viable, as it would import iron ore from Chile and coal from Africa, and incur various import duties. However, the state government stipulated that the firm would also need to make its products available in the domestic market, as the SEZ status enables the firm to export all its products, subject to a minimum of 30%. JSW Steel plans to export 35% of its products from the steel plant.

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