JSW may spin off foreign assets to aid expansion

JSW Steel Ltd, India’s third largest producer, is considering putting its overseas coal and iron ore assets into a unit for a share sale to fund expansion, two people familiar with the plans said.

The unit would control coal and iron ore mines in the US and Chile, as well as an exploration business in Mozambique, said the people who declined to be identified as the plans aren’t yet public. JSW may list the unit in an overseas exchange, they said, without giving a timeframe.

JSW Steel, Tata Steel Ltd. and Steel Authority of India Ltd, the nation’s largest producers, are looking to buy mines in Australia, the US and Africa, to feed furnaces as demand increases. A raw material spinoff by an Indian company would be unusual and its success would depend on the asset location, Patersons Securities Ltd. analyst Andrew Harrington said.

“Except for Mozambique, it doesn’t sound as though these would be the most interesting areas for coal development,” Harrington said today by phone in Sydney. “The trend out of India has been to acquire things overseas rather than sell them once they’ve been acquired.”

Mumbai-based JSW Steel spokesman Mithun Roy didn’t reply to e-mailed questions from Bloomberg News.

JSW Steel shares have climbed 31 per cent this year to close yesterday at Rs 1,326.90, making them the third-best performer on the 35-company Bloomberg Asia Pacific Iron and Steel Index behind South Korea’s Hyundai Steel Co. and Australia’s Fortescue Metals Group Ltd.

The Indian steel market has grown more than 55 per cent since 2005, fuelled by auto sales and government construction, according to steel ministry data.

JSW Steel bought seven coking coal mines in May in the US with reserves of about 123 million metric tons. In Chile, the company’s Bellavista iron ore mines, acquired in 2008, are likely to start production by December, Group Chief Financial Officer Seshagiri Rao said last month.

The company’s Mozambique unit is exploring for coal and iron ore resources, according to JSW’s latest annual report.