JSW Steel to Buy Welspun Maxsteel in Over Rs 1,000-Crore Deal
New Delhi: JSW Steel on Monday said it has entered into an agreement to acquire sponge iron maker Welspun Maxsteel Ltd in a deal worth over Rs 1,000 crore.
This is one of the biggest deals in the domestic steel sector in the recent times.
JSW Steel would acquire the entire equity shares held by Welspun Enterprises Ltd in Welspun Maxsteel Ltd "for an enterprise value of Rs 1,000 crore plus net current assets", according to a statement.
Welspun Maxsteel is situated in close proximity to JSW Steel's Dolvi unit, offering complementary infrastructure and location to augment the current envisaged expansions, the statement added.
JSW Steel, which has an installed capacity of 14.3 million tonnes per annum (MTPA), has a strategic plan to increase its steel production to 40 MTPA in the long term.
"This acquisition is value accretive to JSW Steel due to synergies in supplying surplus pellets to WMSL (Welspun Maxsteel) and use of DRI (direct reduced iron) from WMSL in company's steel-making operations at Dolvi plant," JSW Steel joint managing director and group CFO Seshagiri Rao said.
Welspun Enterprises said in a regulatory filing that Welspun Maxsteel would be sold for an enterprise value of Rs 1,000 crore in addition to net current assets as of August 31, 2014.
"This sale will enable JSW Steel... to effectively utilise the WMSL facility and further expand the business for achieving its strategic goal," it noted.
In the past few years, Welspun Maxsteel has not been able to operate at its optimum capacity due to irregular supply of natural gas from contracted suppliers, according to the filing.
Shares in JSW Steel, on Monday, ended at Rs 1,276.50 apiece on the BSE, up 0.14 per cent from the previous close. Welspun Enterprises stock ended 4.77 per cent lower at Rs 256.75.
Meanwhile, JSW Steel said it has surplus pellets in its subsidiary Amba River Coke Ltd and the same would be supplied to Welspun Maxsteel.
"The cost of production of WMSL is expected to come down due to replacement of significant portion of its bought-out pellets with captive pellets," JSW Steel said.
"The DRI produced by WMSL shall initially be used partly by the company's Dolvi unit, and would be consumed in the entirety post completion of its ongoing expansion to 5 MTPA."
