Stock crash: Sajjan Jindal won't convert preferential warrants, set to lose Rs 529 crore

MUMBAI: Sajjan Jindal, the promoter of JSW Steel, India’s largest private steelmaker by domestic capacity, is set to lose over Rs 500 crore paid as initial deposit for preferential warrants allotted in June last year that will be due for conversion on Thursday at a price more than double the current rate.

Twenty-five per cent of the value of the securities, or Rs 529 crore, was paid up front, under regulations governing convertible warrants while the remaining amount, Rs 1,588 crore, was to be paid after 18 months.

Jindal did not comment on the issue, but Seshagiri Rao, joint MD of JSW Group, said it was “highly unlikely” that the warrants would be exercised.

“The financial markets are tight and the interest rates being very high, it will be difficult to raise funds in a short period,” he added. The stock price, which is trading at a sharp discount of 55% to the allotted price, has made conversion unattractive.

Shares of JSW Steel closed at Rs 543 on Wednesday, down 55% compared with the conversion price of Rs 1,210. It has lost half its value in the past year and has fallen 61% from a peak of Rs 1,388 in October last year.

JSW, whose consolidated debt stands at around Rs18,450 crore as of September 30, could find it difficult to meet the shortfall as the company also faces a possible payout of Rs 2,000 crore on account of foreign currency convertible bonds that are due for conversion six months later.

Warrants are securities that entitle the holder to buy the stock of a company after a specified period. The instruments are issued at a specified price, which is calculated based on the pricing criteria prescribed by markets regulator Sebi.

The conversion would have also helped promoters in raising their stake to 42.24% from 37.71%. JSW Steel, which doubled its steelmaking capacity to 10 million tonnes in about two years, surpassing Tata Steel and falling just short of stateowned SAIL, has run into problems since July when the Supreme Court banned mining in Karnataka for violating environmental norms.

The court order forced JSW Steel to cut production as its plant is located in that state and it sourced ore from there. JSW Steel had issued 1.75 crore warrants on an initial payment of Rs 529 crore, to Sapphire Technologies, a promoter group firm, on June 16, 2010.