JSW set to take over Ispat after lenders give their green signal

Sajjan Jindal-owned JSW Steel is set to take management control of Ispat Industries. This follows hectic negotiations on Monday between Ispat’s promoters and the company’s principal lenders — IDBI Bank, IFCI and ICICI Bank — who backed JSW’s bid.

The lenders’ backing is crucial, as Ispat is under corporate debt restructuring. It has close to Rs 10,000 crore in debt on its books.

JSW Steel and Ispat Industries were to announce a deal on Monday at a joint press conference, ahead of Ispat’s annual general meeting in Kolkata on Tuesday. That, however, did not materialise as the negotiations with lenders continued late into the evening.

Ispat shares, meanwhile, surged 10.64 per cent on Monday to close at Rs 24.95 on the Bombay Stock Exchange, as the market expected the deal to close.

At the time of going to press, sources involved in the negotiations said all differences had been ironed out and a deal structured. JSW will have 42 per cent stake in Ispat through the issue of fresh shares for Rs 2,157 crore, while the holding of promoters Pramod and Vinod Mittal will come down to around 20-24 per cent.

Management control would be with JSW. The company would be required to make a mandatory open offer for 20 per cent stake at the Sebi-mandated price of a two-week average.

The boards of Ispat and JSW are expected to convene on Tuesday for necessary approvals. Ispat is also likely to call an extraordinary general meeting of shareholders to expand the capital base in the next 21 days. The debt restructuring board’s approval will also be required. The deal is expected to close in 45-50 days.

The agreement promises to be beneficial for Ispat’s Indian lenders, as they have refused to take any haircuts or losses on their exposures. Moreover, following a change of control, Ispat has agreed to prepay all outstanding debt, including working capital debt and foreign currency loans of close to Rs 10,000 crore by September 2011. Until then, Ispat has agreed to continue with its repayment schedule on existing terms. 

In November, Ispat failed to pay lenders Rs 77 crore in debt. Following this, the three prime lenders decided to convert some of their debt into equity, which took their holding from around 6 per cent to 10 per cent. Lenders had the option of converting debt into equity up to 19.53 per cent. Pramod and Vinod Mittal have already pledged over 90 per cent of their stake with the lenders.

Lenders will also be converting part of that debt to the tune of Rs 200 crore into equity. The process has already begun with IDBI writing on Monday to Ispat Industries seeking to convert a term loan of Rs 135 crore into fully paid-up equity shares of Rs 10 each at Rs 14.75 per equity share. IDBI Bank had sanctioned financial assistance by way of a rupee term loan of Rs 250 crore to Ispat on May 28, 2009.

Prodded by lenders, Ispat had appointed Kotak Mahindra Bank to find possible candidates to take a controlling stake in the company following the failure of talks with Stemcor for a strategic 10 per cent stake sale and a plant shutdown as a result of a cash crunch.

Arcelor Mittal, JSPL and Tata Steel were independently approached. But JSW was one of the earliest to show a commitment by signing a non-disclosure agreement with Ispat, sources said.