With commercial mining opportunities coming up soon in both coal and iron ore sectors, the firm is keen to divest these high-debt assets
Mumbai: Naveen Jindal’s flagship steel company Jindal Steel and Power (JSPL) is looking to sell its overseas mining assets and focus on the India business instead, a senior company official told Mint. With commercial mining opportunities coming up soon in both coal and iron ore sectors, the firm is keen to divest these high-debt assets and use the proceeds to invest in its home market and reduce its debt instead.
JSPL has a host of coal and iron ore mines in Africa, specifically in South Africa, Botswana and Mozambique and coking coal reserves in Australia. In February, Mint reported that JSPL was preparing to sell high-yield dollar-denominated bonds to refinance debt of around $750 million on its overseas assets. The company now appears to have changed its intentions since then and is pursuing asset sales instead.
“The environment in India is changing," V.R. Sharma, MD, JSPL, told Mint. “Coal and iron ore mines are coming back to the industry in India and the atmosphere for steel in the future is very congenial. Why focus overseas when everything is available within the country? We’re looking inwards."
“The government is going to allow the private sector in coal mining and iron ore mine auctions are already happening," Sharma said. “Even if we can’t secure our own coal mines, the overall availability of coal within India is going to rise so we can still buy from the market at a competitive price. Already, coal prices have fallen 35-40% from January to June. Our focus in on Indian soil; that’s why we’re going to divest the overseas entities and keep the Indian company healthy."
On Tuesday, JSPL announced that it had accepted a binding offer to sell its entire stake in Jindal Shadeed Iron and Steel Co LLC (JSIS Oman), another overseas asset, to promoter company Templar Investments Ltd. JSIS Oman was held through JSPL’s subsidiary Jindal Steel and Power (Mauritius) Ltd. The enterprise value of the deal is over $1 billion, valuing the company at 7.2 times its FY20 earnings before interest, tax, depreciation and amortisation.
JSIS Oman operates a 2 million-tonne-per-annum integrated steel plant in the port city of Sohar in Oman.
“There were 6-7 bidders for the Oman asset and all of them conducted their due diligence," Sharma said. “We had engaged EY and a local consultant for the process. Because of covid-19 and the oil price shock, the prospects of the steel industry there were dimmer than before and investors were not as interested in an acquisition. Finally, bids were submitted in sealed envelopes and the Mauritius subsidiary of Jindal family group was the highest bidder."
Sharma also said that the Oman sale will reduce debt on JSPL’s balance sheet by roughly ₹6,000 crore. As of March-end, JSPL reported consolidated net debt of ₹35,919 crore, after paying down about ₹3,200 crore in FY20. “There has been continuous pressure by lenders to reduce debt and we have been doing this from internal accruals to the extent of ₹4,000- ₹5,000 crore every year. Then we discussed with our company in Mauritius and lenders and decided to free Indian bankers from the burden by selling the asset," Sharma said.
Indian brokerage firms have said that the sale is a positive for JSPL’s financial metrics, but are awaiting details on the specifics of the deal. A report by ICICI Securities said: “The underlying presumption here, and which will get tested as the contours of the deal become more and more clear, is that the fund raising of Templar Investments Ltd shouldn’t lead to any additional promoter pledges or lien of any kind to the promoter shareholding. The chances of the same are limited in our view."
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