Sajjan Jindal-controlled JSW Steel Ltd has bought three steel firms in the US controlled by his elder brother Prithvi Raj Jindal for $900 million. The three firms are Texas-based Jindal United Steel Corp, Saw Pipes USA and Jindal Enterprises LLC. JSW will acquire 90 per cent stakes in these companies, while some of the existing shareholders will retain the remaining equity.
The company will fund the acquisition through a recourse debt of $380 million to be raised against the guarantee of JSW Steel, and a non-recourse debt of $560 million which will be raised in the acquired companies. In a non-recourse loan, the borrower does not have direct personal liability, although there is a collateral.
“The total enterprise valuation is $900 million and we are taking 90 per cent. So we will be paying $810 million for the 90 per cent stake, and we are investing $130 million towards the working capital of these companies,” JSW Vice Chairman and Managing Director Sajjan Jindal said. JSW has formed a 100 per cent subsidiary in US and Netherlands to raise finances to fund the acquisition.
JSW will invest $150 million through equities in to these US companies, JSW director (Finance) Sheshagiri Rao said. The company is not divesting equities to finance the acquisition, Rao added. The acquiree companies together have revenues of $510 million and a debt of over $42 million.
Jindal said the company will invest Rs 850 crore over the next three years in a beneficiation plant at Bellary in Karnataka. The plant will produce 15 million tonnes per year of beneficiated iron ore. "We will complete the first phase of the project in the next 12 months while the second phase by 2010,” said Siva Sagar Rao, Joint Managing Director and CEO, JSW steel.
The project cost will be financed by a term loan of Rs 500 crore and the balance out of cash accruals.