JSW Steel announces $900 mn US acquisition

JSW Steel has acquired three companies in the US for $900 million to expand its geographical footprint. The target companies are Jindal United Steel Corporation, Saw Pipes, USA and Jindal Enterprises LLC.

These have 1.2 million net tonne of plate mill, 0.55 million net tonne of pipe mill and 0.35 million net tonne of double jointing and coating lines. These facilities are strategically located near a deep-water port, central to Gulf of Mexico oil and gas industries.

With this acquisition, JSW would get an entry point into growing and booming oil & gas sector in North America. The company would enhance the income accretive business model for immediate access to customers and markets through product diversification, market diversification and geographical diversification.

On completion of due diligence, JSW Steel will acquire 90% stake at an approved enterprise valuation and the balance 10% will be retained by some of the existing shareholders.

The acquisition price of $900 million works out to 6.25 times of the EBIDTA for 2006-07 (Apr-Mar) and is comparable with the transaction EBIDTA multiple of 4.7 to 14.8 times for similar transaction in the steel industry internationally, the company said in a notice to BSE.

According to Seshagiri Rao, director-finance, the funding required for completing this acquisition of 90% stake including working capital, will be $940 million, which will be financed by a foreign currency debt of $380 million to be raised against the guarantee of JSW Steel and the balance $560 million to be raised in the target company.

The company has flexibility of shifting part of the recourse debt to the extent of $230 million to the target company once the debt to EBIDTA covenant is complied with.

JSW Steel will form wholly owned subsidiaries or step down subsidiaries in Netherlands and US to raise finances and make investments to acquire the 90% stake. The companies will be merged into one single operating entity in US through a scheme of merger.

Meanwhile, the JSW group has approved setting up six modules of 500 tph beneficiation plant producing 15 mtpa of beneficiated ore at an estimated cost of Rs 850 crore. The project cost is proposed to be financed by way of term loan of Rs 500 crore, and the balance out of cash accruals. The payback period is expected to be 12 months.

(source: Economic times)