With as many as five deals expected to happen in the next two quarters, the steel sector is hotting up, leading to a faster revival of construction and automobile segments, and the economy, in general. The biggest among the deals would be that of JSW Steel’s plans to take over Bhushan Power and Steel for nearly ₹20,000 crore.
Earlier this month, JSW Steel sweetened the deal to acquire the stressed BPSL by offering an additional ₹400 crore on top of its earlier bid of ₹19,350 crore. Though the admitted claims of financial creditors in the company stood at ₹47,158 crore, the lenders would be happy if the deal is closed sooner than later, considering that the insolvency case has been going on for over three years.
Similarly, London-based Liberty Steel Group, which acquired Adhunik Metaliks in March this year for ₹500 crore, is scouting for more buys in India. The company is leading the race to take over the assets of SBQ Steels.
The National Company Law Tribunal’s (NCLT) Chennai bench has allowed a fresh auction for sale of SBQ Steels, which is under liquidation, after bidders in the previous auction withdrew their offers due to Covid impact. NCLT had ordered liquidation of the company, since no revival plan was approved by committee of lenders last year.
SBQ Steels, flagship of Chennai-based RKKR Group, had admitted claims of about ₹4,267 crore for secured creditors and another ₹80 crore to unsecured financial creditors. It has an integrated steel plant in Nellore, Andhra Pradesh.
More M&A activity likely
Seshagiri Rao, Jt Managing Director, JSW Steel, said while last year saw despair due to unprecedented pandemic, the next year will be marked by a recovery in consumption and investments. The company’s expansion plans and inorganic growth through acquisitions are expected to come to fruition by end of March 2021 coinciding with a rebound in economic activity, he said.
“The company's priority is to leverage the availability of additional capacities to meet the incremental demand that will arise due to economic rebound to create value to stakeholders,” he said.
JSW Steel: Revival in domestic steel demand drives profitability
In yet another deal, UK-based alternative investment manager Nithia Capital is close to acquiring Crest Steel and Power.
“This trend of increased interest in steel and auto component sector is expected to continue as the post Covid-19 upswing in the end user industry is likely to be durable. With global firms trying to move away from China for sourcing components and user industry showing a strong rebound in demand, we could expect more M&A activities in the steel sector, especially in the specialised and component space, going forward,” Mahesh Singhi, Founder and Managing Director at Investment Banking firm Singhi Advisors, said.
Deals completed
Among the deals that were completed during the year were ADV Partners-backed Arjas Steel’s agreement with Modern Steels for acquisition of substantial part of the latter’s business interests for about ₹150 crore. Singhi Advisors was the advisor to Modern Steels.
The buyout will help Arjas ride the current rebound in the automotive segment and especially in the two-wheeler segment at it gets access to a valuable facility in North India and marquee OEM clientele.
Also, JSW Steel had acquired Asian Colour Coated Ispat for ₹1,550 crore, and SMC Power Generation had bought out Concast Steel and Power for about ₹300 crore.
Even though overall steel demand is expected to fall by 2.4 per cent this year, the steel industry is experiencing improvement in realisation and margins were driven largely by restocking and supply shortages.