JSW Steel, Vedanta vie for Usha Martin’s specialty steel business

4th June 2018

JSW Steel and Vedanta have expressed an interest to acquire the specialty steel business of Usha Martin a sale fetching a maximum of Rs. 5,000 crore that will help the Kolkata-based company pare its debt, two people aware of the development told ET.

The valuation of the business is being pegged between Rs 3,500 and Rs 5,000 crore. According to a source who did not wish to be named, both companies have been given the Memorandum of Understanding (MoU) while they explore various aspects of the acquisition of the 1 MT specialty steel plant in Jamshedpur.

“JSW Steel is in advanced talks to buy the specialty steel business,” said a person aware of the developments. “This will be part of the company’s strategy to acquire small distressed businesses in India, the UK and the US and turning them around without stretching the balance sheet.” JSW Steel is also looking at another steel plant in Europe after it recently acquired Aferpi in Italy.

An MoU is an information docket prepared by investment bankers and contains all the terms and details of a potential deal.

On the other hand, Vedanta, with its vast iron ore reserves, has been trying to enter the steelmaking business to add value to the resource that is a key raw material for steel. It has successfully bid for the debt-ridden Electrosteel Steels that has come on the block under the Insolvency and Bankruptcy Code. The creditors have approved of the plan but the company is fighting a legal battle in NCLAT where a fellow bidder Renaissance Steel has challenged its eligibility under section 29(A) of the code.

A JSW Steel official declined to comment while an email sent to Vedanta remained unanswered until print time.

The query mailed to Usha Martin was dubbed as “speculatory in nature” by CFO Rohit Nanda.

Usha Martin had a total debt of Rs 3,723 crore on its books at the end of March 2018 and reported net loss in all quarters of the last fiscal except for the March quarter when it came back into the black with a net profit of Rs 12.6 crore, reports Bloomberg.

Its specialty steel business consists of a fully-integrated steel plant with captive iron ore and coal mines and produces wire rods and bars that feeds the company’s wire rope business as well as finds use in forging applications, automobiles and engineering industries. It contributes to two thirds of the company’s revenue. For 2017-18, the consolidated revenue from operations stood at Rs 4,768 crore.

Rajeev Jhawar, MD of Usha Martin, had last year said it was looking at selling either its wire rope or steel business to pare debt. Jhawar has also been involved in a legal tussle with uncle Basant Jhawar and cousin Prashant Jhawar, who have said Rajeev orchestrated their dismissal from the company last year apart from indulging in financial irregularities. They had moved the NCLT Kolkata and the Calcutta High Court in February.

Domestic steelmakers are churning their production and acquisition strategies to make the most of an anticipated high demand growth that the world will be witnessing with India leading the pack after China. According to World Steel Association, there will be a 1.8% demand growth for steel globally in 2018 while Indian steel is set to grow at 5.5%.

“Usha Martin will help JSW Steel access a highly niche market of specialty steel business while for Vedanta it is a good opportunity to convert its iron ore into an end product to save the iron ore mines as mandated by the state authorities in Odisha,” said Goutam Chakraborty, metals analyst at Emkay Securities. On the growing trend of consolidation in the steel market and a possible concern of a handful of players controlling supply and prices, he said since steel is a global commodity, the price will always be governed by international benchmarks.

Source: THE ECONOMIC TIMES