Research firm Credit Suisse has accused JSW Steel of understating its debt by Rs 11,900 crore, a charge dismissed by the Sajjan Jindal group company.
In a note released on Friday, Credit Suisse said the company’s debt was understated on three counts: “First, acceptances of Rs 7,500 crore (up from Rs 6,800 crore in FY11) are effectively debt; second, securitised receivables of Rs 3,100 crore (up from Rs 2,600 crore); and third, Rs 1,200 crore from the fall in the rupee.” The net debt reported by JSW Steel on March 31 was Rs 16,600 crore.
“The rise in understated debt compounds our concerns on steel oversupply in India, especially as we value JSW on EV (enterprise value)/Ebitda (earnings before interest, tax, depreciation and amortisation), and higher debt takes away from market capital. Debt understatement of Rs 11,900 crore is considerable, given the market capital is only Rs 16,100 crore,” Credit Suisse said, adding JSW’s unhedged portion of dollar liabilities now stood at $2.9 billion, a rise of 25 per cent compared to 2010-11.
Denying the report, Joint Managing Director and Group Chief Financial Officer Seshagiri Rao said, “JSW Steel prepares its annual financial statements in accordance with Indian generally accepted accounting principles. It presented its balance sheet for the year ended March 31 in conformity with the revised Schedule VI of the Companies Act, 1956.” JSW said the classification of assets and liabilities in its financial statements was in compliance with accounting regulations and consistent with the practice followed by the company.
“The company strongly objects to these misleading statements. These financial statements have been audited by a reputed firm of chartered accountants,” it stated.
On Friday, JSW Steel’s shares closed at Rs 715, down one per cent, on the Bombay Stock Exchange.
JSW Steel’s profit fell in the year ended March 31, owing to a decline in production, as iron ore supplies saw a sharp fall after the Supreme Court’s ban on mining in Karnataka. However, the cost of iron ore remained at last year’s levels---Rs 2,900 a tonne. Suisse noted, “Despite losing 20 per cent of its own iron ore supplies to the Karnataka ore ban for nine months, JSW’s cost of iron ore remained unchanged at Rs 2,900 a tonne. This is when international ore prices stayed steady in dollars, and rose in rupees.”