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Home arrow News arrow Mergers and Acquisitions arrow JSW acquires controlling stake in Ispat Industries Ltd for USD 3 billion
JSW acquires controlling stake in Ispat Industries Ltd for USD 3 billion Print E-mail
Written by Anand   
Tuesday, 28 December 2010
New Delhi: JSW Steel will acquire a controlling stake in Ispat Industries Ltd for around US $3 billion. With this JSW Steel will become India’s largest steel producer with a combined capacity of 14.3 mtpa by March 2011.

The current difficulties of Ispat Industries emanate from a financial imbalance and lack of integration in key inputs of coke, pellet and power. JSW’s infusion of equity removes this financial stress and the proposed linkages of key inputs will reduce the operating cost. By taking over the management of Ispat Industries, JSW will address these concerns.

This controlling stake takes JSW one step closer in achieving its aim of producing 34 mtpa by 2020.

Ispat Industries will issue on a preferential basis, 108.66 crores equity shares at Rs.19.85 per share for a consideration of Rs.2157 crores. In addition, JSW will make an open offer to the minority shareholders of Ispat Industries as per SEBI guidelines.

While JSW’s holding will be at 41.29% on completion of preferential allotment, with a scope to go up based on the outcome of the open offer, the existing promoters will hold 26% on completion of transaction. Dilution of holding for both the parties will occur if there is a capital raising in the future. JSW will further re-finance the entire outstanding debt of Ispat.

Ispat Industries, with a production capacity of 3.3 mtpa, is inherently seen as a pioneering company that brought new technologies into India viz: Twin Shell ConArc furnace and Thin Slab Casting facility. The Twin Shell ConArc furnace provides the steel making facility with a great amount of flexibility. Along with the state-of-the-art Compact Strip Mill, Ispat also has an in-house jetty, with a cargo handling capacity of 12 mtpa, that gives it an added advantage. Further, Ispat’s mining concessions in India and overseas along with the geographical location of the plant in the West of India makes it all the more attractive.

JSW will also put in a systematic plan to turnaround Ispat Industries by developing synergies in the competitive steel market. JSW Steel will facilitate sourcing of key inputs like coke, pellet and power which will bring down the cost of production substantially. JSW’s extensive pan India network will provide Ispat with better market penetration. By improving the levels of efficiency and by rationalizing the sourcing of Iron ore lumps and fines JSW will reduce the cost of production.

Besides this, Ispat industries will set up a captive coke oven plant, pellet plant and power plant to achieve complete integration of steel making facilities over a period of 36-48 months in order to reduce cost of production. Along with this various operational efficiency projects which shall be taken up along with debottlenecking of existing facilities for capacity enhancement from 3.3 mtpa to 4.2 mtpa.

Ispat Industries will be renamed JSW Ispat Steel Ltd. Mr. Sajjan Jindal will be the Non Executive Chairman of the Company. Mr. Vinod Mittal will be Executive Vice-Chairman of the Company during the transition period and subsequently function as a Non-Executive Vice Chairman.

High rates of growth to the tune of 9% per annum, compounded with huge infrastructure investments have ensured that the demand for steel will remain robust in the near future. JSW Steel is therefore continuously on the lookout for both organic and inorganic growth opportunities. The collaboration with Ispat Industries fits in very well with JSW’s bullish outlook on the emerging steel scenario.

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