Jindal Steel studies breakup plan as $6 bn debt weighs
Firm looking at splitting its steel, power and international businesses into 3 separate entities
MUMBAI/NEWDELHI: Jindal Steel & Power Ltd is considering a breakup plan as part of a restructuring to help trim its ₹42,000 crore ($6 billion) debt pile and boost investor confidence in a company that was once India’s biggest steelmaker by market value.
The New Delhi-based company is looking at splitting its steel, power and international businesses into three separate entities, chairman Naveen Jindal said in an interview. Any such plan would need the approval of lenders, regulators and the board, he said.
The steel unit would include the coal mines, while the international business would include the Oman steel plant, he said.
Jindal Steel will seek to progressively sell about 30% of the Oman unit over two to three years, and this may partly be achieved through an initial public offer, the chairman said. The company will engage with potential buyers in December and hopes to conclude a deal by March, he added.
The outlook is brightening for the mill, which last month reported its first quarterly profit after notching up three-and-ahalf years of losses. In the wake of a global steel industry revival, its shares have risen 55% in the past year, making it the best performer on the 10-member S&P BSE Metal Index. “It is a kind of value unlocking,” said Goutam Chakraborty, a Mumbai-based analyst at Emkay Global Financial Services, by phone. “Breaking the company into three and distributing the debt accordingly is probably going to take the load away from the single company.”
While the company’s steel business is performing well with a rail order from the government and a buoyant market, its power business was hit by the cancellation of coal licenses by the government, Chakraborty said.
The steelmaker, which has come back from the brink of bankruptcy, wants to get its debt ratio down to two times pre-tax earnings, from about five times now, over the next four or five years, Jindal said in the August 30 interview. This fiscal year the company wants to cut debt by 15%. “We are going to be really, really conservative. There is no question of taking more debt,” he said.
Jindal Steel’s coal mining operations in Australia may also be on the block—but there’s no hurry. “Coal prices are very good, so if we get a good price, we can look at that,” he said.
JSW Energy Ltd, run by his brother Sajjan Jindal, had paid an advance of about 4 billion rupees for a deal brokered in 2016 for Jindal Steel’s 1,000-megawatt power plant in central India. However, the period for completion of the deal has been extended by a year as some of the conditions for the sale remain unfulfilled. “If we do not do the deal then we will pay it back to them,” Jindal said. Both are sons of billionaire Savitri Devi Jindal.
In the fiscal year ended March 31, 2012, Jindal’s company had a market value ahead of rival producers Tata Steel Ltd. and JSW Steel Ltd—owned by Jindal’s brother—and Steel Authority of India Ltd. MUMBAI: The BSE Sensex erased all its early gains to end lower by about 333 points in see-saw trade Monday, posting fourth straight session fall due to widespread selling in FMCG, realty, power and banks stocks amid the rupee hitting yet another record low.
Weakening global cues, triggered by continuing trade war spats between the US and China, too impacted domestic market sentiment. The Indian currency collapsed to a new lifetime low of 71.10 in intra-day trade, raising concerns on the macroeconomic front. Adding to the woes, the country’s manufacturing sector activity eased for the second consecutive month in August.
The 30-share Sensex had soared over 289 points to hit a high of 38,934.35 in early trade boosted by good first-quarter GDP data and recovery in rupee but gave up its gains completely following late sell-off, which dragged it down to a low of 38,270.01 after data showed that manufacturing PMI has slowed in August. It finally settled at oneweek low of 38,312.52, showing a hefty loss of 332.55 points. The broader NSE Nifty closed below the 10,600 mark by plunging by 98.15 points at 11,582.35.