JFE Holdings Inc., Japan’s second largest steel manufacturer and the world’s fifth biggest steel producer, Tuesday announced that it had agreed on a deal with India’s third largest steel manufacturer, JSW Steel for the acquisition of 14.99% of its stake.
The deal will see JFE Steel Holdings Inc. remit an estimated Rs 4,800 for the investment and it is expected that the accrued funds from the sale will enable the Indian steel manufacturer cut down its high debts currently being experienced in its finances. As it is, the Indian steel producer owes debts of about Rs 17,700 crore, when tallied up to the end of 30th June, with 1:7:1 as its consolidated net gearing.
Earlier on, the two giant steel producers, JFE and JSW had gone into a tier up agreement last year and it is hoped that, even though JFE Holdings Inc’s 14.99% stake will not earn it a place in JSW’s management, the move serves as an opportunity for the two to endear their partnership and allows the Japanese steel maker an unparalleled chance to take advantage of the Indian steel market minus having to build its mills in the country or a strong presence.
Seshagiri Rao, JSW Steel’s managing director and chief financial officer said he expects the debt to equity to be 0:5:1 after the deal even though he did not state just how much debt the company hopes to cut down after the deal. However, JSW Steel’s managing director and chairman, Said Sajjan Jindal said the definitive agreement with the Japanese steel producer marks an important opportunity for the company’s growth and change when looked at in terms of strategy and a financial standpoint.
Other than racking in equity for JSW Steel, the deal will as well bring the Indian steel firm the much needed technology as it grows and expands its business, said Jindal. However, Jindal was quick to point out that the Japanese steel maker won’t be taking up any more than the 14.99% share it has bought; even though the deal’s subscription agreement states that the Japanese steel maker has made an initial investment of over Rs 4,800 crore in JSW Steel.
The agreement further states that should JFE’s market price surpass Rs 1,365 for every share for a minimum of five trading days ending 31st August; JSW will issue 32 million shares to JFE at a conversion price of Rs 1,500 per share.
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