Mumbai, Dec 21 (IANS) Sajjan Jindal-led JSW Steel Tuesday said it will buy controlling interest in Ispat Industries at an enterprise value of $3 billion to emerge as India's largest producer of the commodity with an annual capacity of 14.3 million tonnes.
As per the terms of the deal, debt-stricken Ispat will issue preferential shares worth 41.29 percent of its paid up capital to JSW Steel, a part of the O.P. Jindal group, for around $500 million. JSW Steel will also make a mandatory open offer for 20 percent.
The completion of the transaction will result in the holding of existing promoters -- Pramod and Vind Mittal -- coming down to around 26 percent. This could drop further if the company raises further capital.
The company will be renamed JSW Ispat.
'Ispat Industries, with a production capacity of 3.3 million tonnes per annum, is inherently seen as a pioneering company that bought new technologies into India,' JSW said in a statement.
'Further, Ispat's mining concessions in India and overseas along with the geographical location of the plant in west of India makes it all the more attractive,' said the statement, in the form of a regulatory filing with stock exchanges.
The announcement saw the shares of Ispat plummet 15.03 percent on the Bombay Stock Exchange (BSE) at Rs.21.20, while that of JSW Steel rose 2.23 percent at Rs.1,211.95, as per data available with the exchange.
'This deal should prove to be a big relief for Ispat Industries, which has been struggling with the debt-related issues for several years,' said Jagannadham Thunuguntla, head of and chief strategist with leading brokerage SMC Capital.
'This deal may prove to be win-win for both the companies. For Ispat, its an opportunity to come out of the debt shackles. For JSW Steel, its an opportunity to increase capacity at a discounted valuation,' Thunuguntla added.
According to JSW Steel, a systematic plan will also be put in place for Ispat by developing synergies in the highly-competitive steel market, while facilitating sourcing of key inputs such as coke and power to bring down production costs.
'Besides this, Ispat will also set up a captive coke over plant, pellet plant and power plant to achieve complete integration of steel making facilities over a period of 36-48 months,' the company said in the statement.
'Sajjan Jindal will be the non-executive chairman of the company, while Vinod Mittal will be the executive vice chairman for a period of 18 months during the transition period and subsequently function as a non-executive vice chairman.'
JSW Steel has targeted 34 million tonnes of steel by 2020.