JSW Steel Acquires Ispat and Becomes India's Largest Steel Producer

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Researched by Industrial Info Resources (Sugar Land, Texas)--JSW Steel (BSE:500228) (Mumbai, India) announced on December 21 that it will buy a controlling interest in Ispat Industries (BSE:500305) (Mumbai) for $3 billion. JSW, which is led by Sajjan Jindal, will emerge as India's largest steel producer, with an annual capacity of 14.3 million tonnes. The company will be renamed "JSW Ispat."

"Ispat Industries, with a production capacity of 3.3 million tons per year, is inherently seen as a pioneering company that brought new technologies into India," said a JSW statement that was in the form of a regulatory filing with stock exchanges. "Further, Ispat's mining concessions in India and overseas, along with the geographical location of the plant in western India, makes it all the more attractive."

According to JSW Steel, a systematic plan also will be put in place for Ispat by developing synergies in the highly competitive steel market, while facilitating the sourcing of key inputs, such as coke and power, to reduce production costs.

"Besides this, Ispat also will set up a captive coke-oven plant, pellet plant and power plant to achieve complete integration of steel-making facilities over a period of 36 to 48 months," the company said in the statement.

JSW Steel has targeted production of 34 million tons of steel by 2020.

According to the terms of the deal, Ispat, which is riddled with debts, will issue preferential shares worth 41.29% of its paid-up capital to JSW Steel, a part of the O.P. Jindal group, for about $500 million. JSW Steel also will make a mandatory open offer for 20%.

"This deal should prove to be a big relief for Ispat Industries, which has been struggling with the debt-related issues for several years," said Jagannadham Thunuguntla, head of and chief strategist with leading brokerage SMC Capital. "This deal may prove to be win-win for both the companies. For Ispat, it's an opportunity to come out of the debt shackles. For JSW Steel, it is an opportunity to increase capacity at a discounted valuation."

"Sajjan Jindal will be the non-executive chairman of the company, while Vinod Mittal will be the executive vice chairman for a period of 18 months during the transition period, and subsequently function as a non-executive vice chairman," a company statement said.

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