Japan’s JFE to invest Rs.4,800 crore for JSW Steel stake

MUMBAI - JSW Steel Tuesday announced that JFE Holdings, Japan’s second largest steelmaker by output, would pick up 14.99 percent stake in the company for over Rs.4,800 crore (over $1 billion).

A strategic tie-up between the two announced in November provides for JFE maintaining its shareholding at not more than 14.99 per cent in JSW.

Asked whether going forward JFE would raise its stake in JSW Steel, Sajjan Jindal, JSW Steel’s vice-chairman and managing director, said: “There is no plans to increase it beyond 14.99 percent.”

Following the agreement, JSW would issue 32,004,798 equity shares to JFE at Rs.1,500 each on August 31.

“In case the average closing stock price of JSW in two consecutive weeks or 10 consecutive days, or in case closing price during five consecutive trading days reaches or exceeds Rs.1,365 between subscription agreement date and August 31, 2010, JSW will allot 32,004,798 equity shares at Rs.1,500 per share on the date of allotment,” he said.

Otherwise, JSW will allot one fully convertible debenture (FCD) of face value of over Rs.48,007,197,458, he added.

After this agreement, JFE would have the right to nominate one director in the board of JSW, Jindal said.

JSW expects its debt-equity ratio would fall to 0.5:1 by 2012 from present 1.7:1 (as of June 30).

The raised amount would be used for “deleveraging balance sheet to fuel next phase of growth,” he said.

The strategic partnership would help JSW to manufacture various value-added steel products for the automotive industry with substrate materials at its Vijaynagar works facility.

The auto industry in India is expected to grow steadily over the next decade, with annual sales forecast to reach 3 million units by 2016, as middle class purchasing power grows.

The substrate supply agreement would allow JSW to preferentially source substrate materials from JFE to support the manufacturing of value-added automotive steel products till the time JSW starts producing its own substrate.