JFE, JSW plan joint bid for Bhushan Steel

The $23.21-billion Japanese steelmaker JFE Holdings, and Sajjan Jindal’s JSW Steel, are likely to put in a joint bid for bankrupt Bhushan Steel, reflecting competitive intensity for an asset that the Tatas and Arcelor Mittal may also seek to buy to benefit from an upswing in an industry overcoming four years of supply overhang.
In an unrelated development, bankers to the troubled alloymaker have decided to extend the deadline for bids from Thursday to Feb 3. The move to postpone the bid deadline is understood to have come about to give more time to bankers to fine-tune the terms for the bidding process for a company that has seen increasing interest lately from prospective acquirers, a top executive source told ET.

JFE is keen to participate and a team from Japan accompanied JSW for the due-diligence process for Bhushan Steel, including making joint site visits to the steel plant. While the contours of the JSW/JFE bid are being worked out, the understanding is that Ajay Piramal’s private equity-arm and JFE will have sizeable equity, with JSW holding the rest. JSW will get operational control of Bhushan Steel if they win the bid.

JFE has had a seven-year association with JSW and holds a 15% minority equity stake in the Indian steelmaker. The success of the partnership is said to have whetted its appetite to increase its presence in India. At the same time, the Japanese steelmaker is known to be cautious and riskaverse, which explains the delay in sealing the partnership, the executive said.

“JFE will take a final call in a few days, whether they are intending to join JSW in bidding for Bhushan Steel,” the executive said on Tuesday. Unsure about JFE’s final nod, JSW also has a plan B ready, he added.

Bhushan Steel faces ₹55,868 crore in claims from financial creditors. Of this, the resolution professional has accepted only ₹44,498 crore by way of claims. It also faces claims of ₹1,436 crore from operational creditors.

Bhushan Steel is among the 12 entities for which RBI directed banks to refer the company to the bankruptcy court immediately.

JSW Steel is in talks with ICICI Bank for a letter of comfort, which is mandatory for all bidders to furnish along with the resolution plan.

“Since the debt is huge, it will not be an all-cash bid. It is expected to be a combination of cash, debt recast and some haircut and some equity upside for lenders,” said a banker, who did not want to be named.

While the liquidation value of Bhushan Steel is at ₹14,500 crore, the asset is likely to get exciting bids in view of the heavyweight bidders in the race. JFE allied with JSW when it needed a technology partner to make valueadded steel, such as electrical steels and auto-grade steel. JSW offered a minority 15% stake in the company for obtaining the crucial technology.

JFE is taking time primarily because of the “uncertainties” involving the bankruptcy process and the fact that the liabilities of the stressed assets are still difficult to estimate. The uncertainties include the tax structure while restructuring the debt.

For JSW, a partnership with JFE as a significant stakeholder is crucial to reining in the acquisition costs of the stressed asset. Hurdle rates for partnering with private equity firms are significantly higher at 20% return on investment, whereas JFE could bring in long-term capital and help source cheap Japanese funds. The Indian steel industry is showing signs of revival after a particularly tough year.