JSW Steel is planning to raise about $350 million (Rs 2,520 crore) from overseas loans, which should help it reduce borrowing costs as it navigates a profit margin squeeze due to a fall in steel prices and integrates recent acquisitions such as of Monnet Ispat.
The purpose of the proposed fundraising is refinancing its existing high-cost debt, which could bring down its overall borrowing costs, said two people familiar with the matter. A part of the proceeds would also be used for general business purposes.
JSW has proposed to raise five-to-seven-year loans, which may be priced after adding about 350 basis points to the London Interbank Offered Rate (six-month).
The benchmark gauge has dipped 50 basis points since May, with about $16-17 trillion debt securities yielding in negative globally. A basis point is 0.01 of a percentage point.
The company has reached out to about half a dozen investment bankers including Citi, Standard Chartered, JP Morgan, Deutsche Bank and MUFG, the people said. The banks could not be reached immediately for comment.
A JSW spokesperson declined to comment on the matter.
The company finds it an opportunity to tap cheap global credit as it battles sector woes,” said a senior executive involved in the processes. Bankers are currently seen debating the success of fundraising, citing investor apathy for any steel sector company.
Last week, global ratings company Moody’s revised India’s steel sector outlook to negative, citing input cost pressure on the profitability of Asian steel producers.
Moody’s said in a note Moody’s is expecting steel producers profitability, as measured by Ebitda per tonne, will decline by around 15% in the 12 months to June 2020. The prices of iron ore and coking coal, two key steelmaking inputs, have surged by more than 60% and 20%, respectively, in the year to June 2019, with weak demand too weighing on.
Back home, ICRANSE -2.71 % — the local arm of Moody’s — cut JSW Steel’s rating outlook to ‘negative’ from ‘stable’.
JSW Steel is in the process of increasing its steelmaking and downstream capacities by 6 million tonnes per annum and 3.95 mtpa respectively by the end of FY2021.
Ongoing capital expenditure also includes various cost-saving projects, including setting up of pipe conveyors (already commissioned), a pellet plant, a captive power plant and a coke oven plant, which are likely to improve JSW Steel’s cost efficiencies further, ICRA said in a note.
Two months ago, JSW Steel announced a mega fundraising plan to garner about Rs 17,000 crores in debt securities, including up to $1 billion in fixed-rate bonds in the overseas markets, mainly to retire short-term loans and meet capital expenditure.
Source: Economic Times
