Aiming to explore growth opportunities in Europe at a time when slowdown has made steel assets overseas cheaper, Sajjan Jindal-led JSW Steel has joined the race to bid for Tata Steel’s UK assets.
“As part of the company’s growth strategy, the company evaluates several opportunities, including the current opportunity of UK steel facilities. It is premature to add any further at this stage,” one of the largest steelmakers in the country, JSW Steel, said in a statement.
Tata Steel on Monday said it has received seven expressions of interest from various companies, for its UK steel business, which is on sale to raise funds. The move will help the company reduce its debt of $13 billion taken to acquire the UK steel facilities in 2007.
People with knowledge of the development said the company will evaluate the situation and “go in only if the acquisition makes good economic sense.” They were referring to the possibility that Tata Steel UK’s price may have been eroded given the ongoing slowdown in the European steel market, and also to the fact that the company has to buy iron ore, the main raw material for steel.
JSW Steel shares closed 2.92%, down on the BSE even as the benchmark Sensex rose by 83.67 points, or 0.3%.
The development raised concerns among investors.
“I am surprised, as given the market conditions for steel in Europe, and also given that JSW Steel is bringing in additional 4 million tonnes into production in India, and is scouting for captive raw materials (iron ore) to feed that... I don’t think it’s a good move,” said an analyst with a large brokerage in Mumbai.
Interestingly, JSW Steel and Tata Steel will reportedly compete with each other to buy Essar Steel, a Mumbai-based steel company that is looking for strategic equity partners to raise funds for a debt restructuring exercise.
The JSW Group, which had recently agreed to acquire Naveen Jindal-led JSPL’s power plant for about `4,000 crore, has debt of about Rs 40,000 crore.
Bankers view such aggressive plans with concern as they have been trying to reduce their exposure to various shaky sectors, including steel, which has also seen maximum defaults.
“The balance sheet of JSW Steel is not exactly in the pink in order to justify such an acquisition,” said CA and investor Nitin Khandkar. “During the first nine months of the current fiscal year, the company ran losses of `913 crore on a consolidated basis, against net profit of `1,734 crore during the year-ago period. Its long-term issuer default rating (IDR), and senior unsecured rating was downgraded last month, by one notch from “BB+” to “BB.”