Jindal Steel to form JVs in Steel, Sell Power Assets in India

11 March 2016

JSPL chief executive Ravi Uppal says his company has already rescheduled loans with some of its lenders. Photo: Pradeep Gaur/Mint

Struggling Jindal Steel and Power Ltd (JSPL) will try to sell stakes in certain units of its steel business, set up joint ventures with companies in Asia and Europe and seek a buyer for its power assets in India, in an effort to pare debt, chief executive officer Ravi Uppal said.

The plans were detailed a day after ratings agency Crisil Ltd downgraded the rating on certain debt instruments of JSPL to default, citing delays in payment of interest on the company’s term loans.

In a phone interview on Thursday, Uppal confirmed there have been delays in payment of interest and attributed this to stress in the earnings from the steel division.

JSPL, which has reported loss for five quarters in a row, has been hurt by a steep fall in steel realizations due to the cheap imports from China, Japan, South Korea and Russia.

JSPL had a consolidated debt of over Rs.42,534.04 crore, as of 30 September 2015. To reduce this, the company will join a number of other infrastructure firms in trying to sell assets.

The Naveen Jindal-led integrated steel producer and power company is in advanced discussions with steel companies in China, South Korea, Japan and Europe to form JVs in certain sectors of steel, Uppal said. He added that the company has also held talks with several potential buyers for its power assets. “We have some very good proposals from players within and outside the country.”

So far, though, the company plans to monetize assets have been slow to fructify.

Since 2014, JSPL has evaluated options, including selling mines in Africa and Australia, land listing its power business in India to reduce debt.

None of these potential sales have been closed.

The plan now is to sell some of the larger assets.

The firm would sell the 3,400 megawatt (MW) of power capacity in part or full, “depending on the offer”, Uppal said.

Of the 3,400 MW, about 2,800 MW is built and the remaining is under construction. The company has power purchase agreements (PPAs) for about 1,200 MW of capacity, leaving more than half the capacity idle.

The plan to list its power unit Jindal Power Ltd has been put on hold, he said.

Overall, the company wants to cut down debt to Rs.25,000 crore.

The extremely challenging operating environment for the steel business means that the sale of power assets is the only meaningful option for JSPL to develerage its balancesheet, said five analysts Mint spoke to.

Very few firms in India have the wherewithal to buy power assets as large as 3,400 MW, and a valuation mismatch between the buyer and the seller often derails deal discussions, said an analyst, requesting not to be named as he is not authorized to speak to reporters. But if a sale is concluded, the analyst estimates that JSPL’s debt could come down by about Rs.18,000 crore or about 40% of the total debt.

Huge debt incurred to finance power projects, lack of long-term PPAs and linkage to fuel are the major hurdles for stressed power companies wanting to sell their projects, said Puneet Bhatia, assistant general manager, corporate rating at CARE Ratings.

Uppal said his company has already rescheduled loans with some of its lenders, adding that discussions with other lenders are ongoing.

“We are already in discussions with both foreign and domestic lenders and with some of them we have come to an agreement,” he said. “We have never defaulted in payments to our creditors including our bankers and we will not let it happen. It’s just a matter of a few months where the inflows and outflows can be matched.”

The company is discussing options for its loan repayment schedule with banks and an external adviser has been hired, said a banker privy to the development on conditions of anonymity.

On Thursday, Bloomberg reported that lenders to Jindal Steel’s $400 million five-year loan due April 2018 will hold a conference call to appoint a financial adviser, and to discuss whether to restructure or refinance an existing facility. The company has breached a financial covenant since the fourth quarter last year, the report said.

The steel sector has been impacted negatively by low sales realization, the company said in a statement to the BSE on Wednesday. In 2014, the Supreme Court cancelled the allocation of 214 coal blocks awarded by the government between 1993 and 2010. JSPL lost allocation of its block and had to pay a levy of Rs.3,000 crore for the coal it had dug out from the mines that were cancelled. The company said this increased its borrowing cost and put a strain on its financial position.

“The business environment for both steel and power is now extremely challenging for the company. Margins in many of its highly profitable business e.g. pelletization, sponge iron and merchant power generation have collapsed on combined effect of fall in prices of end products and rise in cost after disruption of iron ore supply from long term favourably priced mine and closer of captive coal mines,” Motilal Oswal analysts Sanjay Jain and Dhruv Muchhal wrote in their report on JSPL in February.

They, however, added that JSPL’s assets are strategically located in proximity of iron ore and coal mines, which makes the company well placed to bounce back along with improvement in sector fundamentals.


Source : livemint.com