JFE to buy Bengal Steel SPV stake, & not in ally JSW

JFE Holdings, the Japanese steel major, is unlikely to buy stake in JSW Steel as has been stated earlier by both the companies, but rather in a special purpose vehicle (SPV) under which their Bengal project is coming up.

“JFE will definitely buy stake in the 10 million tonne Bengal Steel project but no stake sale will happen in the parent company JSW,” said a source familiar with the development.

Sajjan Jindal, vice chairman and managing director, JSW Steel was in Japan two weeks back to discuss the deal and other formalities.

“The discussions on how much stake JFE will hold in the plant are still going on,” the sources said.

Currently, stakes in the Bengal Steel SPV are jointly held by JSW Steel (89%) and Bengal government (11%).
JSW refused to comment.

In November last year, the two steelmakers had agreed to form a partnership in which JFE agreed to share its auto-grade steel technology with JSW.

Jindal had then said, “We have a collaborated with JFE Steel for joint development of the West Bengal project and for auto-grade steel. The details are being worked-out. The companies will have mutual shareholding too.”

An analyst tracking JSW Steel said JSW itself is undergoing expansion that will take its capacity to 10 million tonne per annum (mtpa) and the Bengal Steel plant is also of the same capacity. “That means that JSW is creating a second company of the same order in Bengal,” he said.

Another analyst said JSW had said earlier that JFE might hold a stake between 26% and 40% in the Bengal project. Considering the project equity of Rs 30,000 crore, this works out to Rs 8,000-12,000 crore.

“Even if JFE starts off with a 10% stake, which comes to around Rs 3000 crore, it will solve most of JSW’s issues of raising debt.”
The first phase of the project will witness an investment of Rs 10,000-12,000 crore and will have a coal beneficiation plant, a pellet plant and an 800 mw power plant which will be ramped up to 1600 mw by the end of second and final phase.

JSW, which plans to begin construction in Bengal in the next six months, intends to develop automotive steel in India of higher tensile strength and will move towards more premium and value-added steel. For this, technology will be provided by JFE.