MUMBAI: JSW Steel on Thursday announced a strategic alliance with Japan’s second-largest steelmaker JFE Steel, but markets were disappointed that the pact does not immediately involve the acquisition of an equity stake in the Indian company.
JSW, India’s third-largest steelmaker, said on Thursday that the partnership will allow it access to JFE’s technology for producing steel used in automobiles and both companies may acquire stakes in each other. Other possible tie-ups include the production of other specialty steels, procurement of raw materials in and outside India and the construction of an integrated steel plant in JSW’s West Bengal project.
JSW vice-chairman and managing director Sajjan Jindal said the financial implications of the proposed collaboration could be “immense” but not quantifiable immediately, because the exact nature of the collaborations has not been finalised. “We have constituted two task forces to arrive at final agreements. It is difficult to provide a timeframe as to when it might take place.”
Investors in India and Japan sold stocks of both firms, after it became clear that a share sale is not imminent.
On Thursday, the JSW stock slipped 0.65% to close at Rs 959.35 after reaching a 17-month high of Rs 1,039 in the morning session on BSE. Shares in JFE Holdings, promoters of JFE Steel, fell 2.9% to 2,885 yen in Tokyo. JSW has a market value of $3.9 billion and JFE $20.4 billion.
“If the money were to come into the company, then there would be an immediate benefit (in the form) of a fall in interest cost,” said Deepak Jasani, head of retail research at HDFC Securities. “Operationally, the technology transfer will take some time to show up in margin improvement,” he added. JFE Steel CEO Hajime Bada described the co-operation in the automotive segment as “the first step” of the partnership. “Through our co-operative activities, we would like to secure a local production base in India,” he said.
JSW has been going slow on its West Bengal project mainly because of funding problems. JSW plans to build a 10-million-tonne-per-year steel mill in West Bengal at an investment of Rs 11,000 crore. The alliance will supply automotive steel to the Indian units of Suzuki, Toyota, Honda and Hyundai, which are global customers of JFE, the world’s sixth-largest steelmaker.
Attempts by global steel companies to set up plants on their own in India have run into trouble. ArcelorMittal, the world’s largest steel producer, and South Korea’s Posco, announced plans more than two years ago to set up plants with capacity totaling 24 million tonne, but they are yet to get the land for the projects.
JSW joint managing director Seshagiri Rao told ET that the market for auto grade steel is growing at 7% with nearly 1.9 million tonne of steel being consumed by the sector. If other collaborations with JFE do not fructify, the Indian company will pay royalty for the procurement of automotive technology from its Japanese partner, he added.
Among the world’s low-cost steelmakers, JSW plans to raise annual capacity to 11 million tonne from 7 million tonne in two years. The $3.5-billion firm sells products in 100 countries.
Source : Economic Times. 20/11/09