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JSW shares surge to 52-week high on stake sale report

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JSW shares surge to 52-week high on stake sale report

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18/11/2009 :


Shares of JSW Steel Ltd,

JSW, India’s third largest steel maker, rose to a 52-week high of Rs997 on the Bombay Stock Exchange (BSE) on Wednesday after NDTV Profit, a business news channel, reported that the company will sell a minority stake between 7% and 11% to Nippon Steel Corp. and raise $300-500 million (Rs1,389-2,315 crore).

JSW shares closed the day at Rs965.65, rising 4.03%, even as BSE’s benchmark index, the Sensex, dropped 0.3% to close at 16,998.78 points.

Nippon, one among the 10 largest steel firms in the world with a 40-million-tonne annual capacity, denied the report.

Seshagiri Rao, group chief financial officer at JSW, told Reuters that he would not like to comment on market speculation, but two people familiar with the development said JSW is indeed in talks with a multinational steel firm that will provide it with access to technology to make high-grade carbon steel and auto-grade steel. They also said a formal announcement is likely very soon.

The buyer could be JFE Steel Corp. of Japan, said one of the persons familiar with the process, but this could not be independently verified by Mint nor could it be reached at the time of going to press.

JSW had passed a resolution at its last annual general meeting in July to raise $1 billion by March 2010 .

A third person in the know of developments said JSW may sell an 8% stake. At Wednesday’s closing price, JSW’s market value is Rs18,062.36 crore. The value of an 8% stake at this price is Rs1,444 crore. Such deals normally carry a premium over the market price.

High-grade steel will give JSW bigger margins from the sale of both electrical- and auto-grade steel, driven by demand of car companies and the electrical industry.

Between April and October 2009, car makers sold 1.05 million vehicles, registering a 16.20% growth over the same period in the previous year.

Carbon steel, used for making electrical transformers, gives a margin as high as $1,000 a tonne and auto grade steel gives a margin of $1,100 a tonne compared with $100 a tonne from the sale of primary steel, the chairman of a small steel company said.

“Technology to make both grades of steel are available in the global market for a price,” the same person said. He did not want to be identified as he heads a rival firm.

JSW was the first Indian steel maker to use corex technology in 1998 to make primary steel at its Vijaynagar plant in Karnataka.

Its Indian operations will witness much stronger growth of 33% between fiscal year 2009 and 2012 compared with 15% for Steel Authority of India Ltd and 19% for Tata Steel Ltd’s Indian operations, Chandrani De, sector analyst with Ambit Capital Ltd, a domestic brokerage, had said in an 11 November report.

One of the two people quoted earlier said the buyer will get access to iron ore mines in Chile. JSW owns a 70% stake in a firm that has iron ore mines in the South American nation. The iron ore project has been deferred because of paucity of funds as JSW is investing to expand in India. It plans to spend about Rs2,900 crore to expand capacity by 6.7 million tonnes and build a 30MW power plant.

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