JSL demerger to bring down interest cost, optimise operations

Debt-laden Jindal Stainless (JSL) through its latest financial and operational restructuring is distributing the Rs 8,580-crore debt among four firms and at the same time is cutting down interest cost by 3.35 per cent.
Besides, the country's largest stainless-steel maker is redistributing assets among its three entities in a bid to leverage idle capacity as well as is streamlining operations and economising production to optimise costs.
"Asset monetisation coupled with company's consistent performance will unlock more value for shareholders as well as optimum utilisation of idle capacity will lead to a better use of resources and will help in checking operational costs," JSL Senior VP (Corporate Strategy) Rajiv Rajvanshi told PTI.

Besides JSL, there are 3 other entities. Jindal Stainless (Hisar) Ltd (JSHL), which alongwith JSL will be in stainless steel business. Both JSL and JSHL will be listed. Jindal United Steel Ltd (JUSL) and Jindal Coke Ltd (JCL), the other two, will be private companies, he added.
On reasons behind hiving off, Rajvanshi said: "JSL was in Corporate Debt Restructuring (CDR) twice. So there is no scope for further debt restructuring because that would have termed it as a non performing asset. By this restructuring, all four entities will operate independently."
JSL is undertaking "financial re-engineering", which is part of the restructuring scheme. It entails two aspects, one is cost that is interest reduction and the second is cash flow. Another important point is that the three companies can now raise funds independently, he added.

Citing JSHL's case, he explained: "The firm is raising Rs 2,600 crore of debt. So whatever debt we had in JSL this is the same. Original repayment schedule of this debt was 8 year.

So, JSHL is now raising this 12 year debt with two year moratorium. JSL paid 14.3 per cent interest and the rate on what JSHL is raising from the banks in 10.95 per cent. So there is a 3.35 per cent reduction in interest payment."
Likewise, JUSL has been transferred Rs 2,400 crore of the total debt with JSL. On this, the company is opting for the Reserve Bank's (RBI) new 5/25 scheme.

"So by virtue of this new guideline, JUSL will raise Rs 2,400 crore of debt for 25 years. So had it been in JSL we would have to repay it in 8 years.
"Similarly Rs 500 crore of coke oven debt is being hived off into JCL again 25 years and the interest rate in 10.95 per cent," Rajvanshi said.
That Apart, there is a Rs 1,000 crore of Funded Interest Term Loan (FITL) on JSL's books and this is being converted into equity, he said.
"So there will be a further reduction on the interest front as this loan will be converted into equity," he added.

On utilising idle capacity, Rajvanshi said: "We have hot
strip mill of 1.6 million tonnes per annum (MTPA) capacity, so our stainless steel melt shop was 0.8 million tonnes (MT), leaving an idle capacity of 0.8 MT.
"Now, the hot strip mill is coming to JUSL, so this firm will put up a blast furnace, sinter plant and a melt shop making 0.8 MTPA of carbon steel."
The existing hot strip mill, of 1.6 MTPA capacity, will now be utilised for 0.8 MT stainless steel and 0.8 MT carbon steel. So one benefit of the scheme is that all the idle capacities in the plant are fully utilised, he noted.

JSL has hived off its coke oven to JCL, which is a recovery type, so there is almost no wastage, he added.
"One, we recycle the by-products and also JCL's existing set up was designed for 2 coke ovens. Now only with a little investment in second battery our coke oven capacity will be doubled.
"So existing 0.43 MTPA will become 0.86 MTPA capacity. Existing coke oven is a Rs 500 crore investment and with Rs 200 crore we will double the capacity," Rajvanshi said.
Jindal Stainless' (JSL's) restructuring has been done with a composite scheme of arrangements and which was approved by the Chandigarh High Court on October 12, 2015.

On November 1, the firm filed the High Court order with the scheme to the Registrar of Companies (RoC).
As part of the scheme, the shareholders of the company will be issued shares by JSHL as per the share entitlement ratio of 1:1.
Through this it aims to increase capacity utilisation, enable the backward integration, ensure long-term stability and focused management of different business verticals.