JSW nears Ispat debt refinance deal

JSW Steel, which acquired Ispat Industries in December last year, hopes to close the debt refinancing deal for the latter in the next couple of weeks.

Ispat, a loss making steel producing company earlier owned by Pramod Mittal and family, has a debt of close to Rs7,500 crore, according to JSW Steel’s last year’s annual report.

At the time of the acquisition, Sajjan Jindal, vice-chairman and managing director of the JSW Group, had said that JSW’s prime focus will be to refinance the debt of Ispat apart from bringing down input costs and making the operations more prudent.

Though Ispat, with a nameplate capacity of 3.3 million tonne per annum, is among the top six steel makers of the country, but had been operating at abysmally low capacity utilisation due to mounting debt. After its acquisition, JSW officials had said that the company will make the plant profitable within a year.

“We are working on three to four areas to make the company profitable. The main are, sales rationalisation, facilitating sourcing of key inputs like coke, pellet and power which will bring down the cost of production substantially and reduce interest on debt,” said Sheshagiri Rao, group chief financial officer, JSW Group, on Tuesday.

Also, JSW has decided to confine Ispat’s operations within Maharashtra, thereby accruing VAT benefit of close to Rs1,400 per tonne by selling its products within the state. Ispat requires close to 225 mw of power which is now being supplied by JSW’s power plant at Ratnagiri.

He said the company is very close to signing a deal to refinance Ispat’s debt and will make an announcement in the next few weeks.

Rao said considering current market conditions and high domestic interest rates, it is difficult to source funds in India, adding there would be some savings in the refinance deal.
However, auditors of Ispat have highlighted certain issues and raised concerns over working capital of Ispat, so far an associate company of JSW Steel with 49.3% holding. According to JSW Steel’s annual report, Ispat auditors have drawn attention in their report regarding overdue sundry debtors amounting to Rs571.60 crore, non-reconciliation of credit balances of Rs118.69 crore and raw material in-transit amounting to Rs104.83 crore. But the report also adds that Ispat’s management has assured that these issues will not have any impact on the numbers of the company.

For the quarter ended June 2011, JSW Steel posted net sales of Rs7,064.57 crore, a jump of 52% from Rs4,646.91 crore over the corresponding quarter last fiscal. Its net profit grew 65% to Rs578.32 crore.

US plant breakeven in 3 months
JSW Steel sees a substantial push in revenues in the coming few quarters from its operations in the US.
Vinod Nowal, director and chief operating officer, JSW Steel, said,

“In the next three months, we will break even with our plate and pipe mill and will look at operating it with close to 80% capacity utilisation.”

JSW has started production from its coking coal mine in the US. and plans to ship the product to India by early next quarter.  “We are planning to bring in up to 0.5 mt of coking coal into India and slowly ramp it up to 3 mt in three years,” said Jayant Acharya, director, commercial and marketing.