Stressed assets sale: Sajjan Jindal leads

It’s not surprising that Sajjan Jindal admires Tata Steel. The company, which was founded by Jamsetji Tata in 1907, ushered in industrial revolution in the country. Over the decades, it remained the largest private steel maker in the country. For an upcoming entrepreneur like Jindal, Tata Steel was the gold standard.

「Tata Steel is what we have grown up looking at. And I have great regard and respect for Tata Steel,」 Jindal told a new channel on the sidelines of the recently concluded summit in Davos.

But the admiration hasn』t held back Jindal as he tussles with the Jamsedhpur-based company for the crown of Indian steel industry.

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JSW Steel is now the largest steelmaker in India, with a capacity to produce 18 million tons a year. Tata Steel, with 12 million tons, is the third behind Steel Authority of India.

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But that pecking order can quickly change, given the furious pace of consolidation that the domestic steel industry is going through. Some of the prized primary and secondary steelmakers – such as Essar Steel and Bhushan Steel – have been brought under the hammer by their bankers after accumulating thousands of crores of debts. The auction of many of them, including of Monnet Ispat, Electrosteel Castings and Bhushan Steel has already taken off. Bids for Essar Steel will be placed today.

In total, 22 million tons of steel capacity are up for grabs. 「This is a great opportunity for JSW Steel and Tata Steel to consolidate their position at the top of the industry,」 said a senior executive of a global financial services company. 「Even for those who are interested in the market, which is slated to double to 200 million tons in 10 years, this is perhaps that chance to open shop,」 he added.

As soon as due diligence was opened up for these companies, the likes of ArcelorMittal, Vedanta, Nippon Steel, JFE and funds like Aion Capital lined up for a look. Even South Korean steelmaker POSCO, which was forced to drop its project in Odisha, was interested.

A few weeks on though, and with some of the auctions already reaching the last stages, the battle has come down to just two – JSW Steel and Tata Steel. The Jindal company has emerged as the lone bidder for Monnet Ispat. Its bids for Bhushan Steel and Bhushan Steel & Power are the highest, followed by Tata’s.

The Tata company again stood second in the bids for Electrosteel, for which Vedanta has emerged the favourite. So the scores (in terms of capacity in million tons) till now –

JSW Steel – 10, and Tata Steel – 0

「I worked hard and I continue to work very hard. I』m a tough competitor to beat. I like to win. There is no question about that,」 Jindal told his interviewer in Davos, just after sharing his admiration for Tata Steel.

By heart, or mind

「It looks like Sajjan Jindal has bid from his heart,」 said a senior executive from one of the companies that had initially expressed interest in Bhushan Steel.

At first glance, it does look so. JSW Steel has bid Rs 29,700 crore for Bhushan Steel, nearly Rs 6,000 crore higher than Tata Steel. Jindal’s bid is twice the liquidation value of Bhushan Steel.

In the case of Bhushan Steel & Power, JSW’s put in a Rs 13,000-crore bid, higher than Tata Steel’s Rs 11,500 crore.

The bids are high if one considers that a company needs about Rs 4,500 crore for each million ton of new capacity. By that measure, an investment of Rs 25,200 crore would be needed to build a plant equivalent of Bhushan Steel’s 5.6 million tons.

A brownfield expansion costs even less, about Rs 3,600 crore for a million ton. 「And with the current margin levels, a payback could happen within three years,」 says the executive quoted above.

While Jindal seems to be bidding high amounts, Tata Steel may be tempered by its Corus experience. Since acquiring the British company for $12 billion in 2006 – after a bidding war with Brazil’s CSN - the Indian steel behemoth has struggled to manage its unit. At present, Tata Steel is saving what is left of its European business by merging it with Germany’s ThyssenKrupp’s steel operations.

So is Jindal really being led by his heart? The answer is not a clear yes.

For one, the steel industry the world over is recovering. Prices have increased, as much as 50 per cent over a year for some products. This would be the best time to buy an asset and attempt a turnaround. The timing couldn』t be better for Jindal.

Also, he is making sure that JSW Steel doesn』t shoulder the acquisitions all by itself. In the case of Monnet Ispat, Jindal has partnered with AION Capital. And for Bhushan Steel, Jindal roped in fellow billionaire Ajay Piramal as a partner.

In his interview in Davos, Jindal said that JSW may not be the majority shareholder in the acquired entities. The emphasis, initially, would be to manage the operations.

Jindal also knows building new capacities in India is not easy. POSCO and ArcelorMittal tried, and even with their deep pockets and abundant human resource couldn』t manage. Jindal too had to shelve a greenfield project in West Bengal.

If this was a race, one could say that Sajjan Jindal has his nose ahead of his competitors. But the homestretch is still ahead. With Essar Steel’s auction opening up today, there could still be a surprise or two. Till then, its advantage Sajjan Jindal.