JSW Steel Implements Resolution Plan For Bhushan Power
Galvanized steel rolls. (Photographer: Andrey Rudakov/Bloomberg)

JSW Steel Implements Resolution Plan For Bhushan Power

JSW Steel Ltd. implemented the resolution plan to take over Bhushan Power & Steel Ltd., weeks after the lenders agreed to terms set by the Sajjan Jindal-founded company for purchasing the assets of the insolvent steelmaker.

To complete the takeover, Rs 8,614 crore was arranged in a wholly owned subsidiary Piombino Steel Ltd. through a mix of equity, optionally convertible instruments to JSW Steel and JSW Shipping & Logistics Pvt., and the debt availed by PSL Funds, according to an exchange filing.

  • The PSL Funds received a total equity infusion of Rs 5,087 crore by JSW Steel in the form of equity and optionally convertible instruments.

  • Of the total amount in PSL Funds raised through debt and equity, Rs 8,550 crore was invested into Makler Pvt. Ltd., a special purpose vehicle, through equity, convertible instruments.

  • Finally, the SPV would be merged with the insolvent steel mill.

  • The resolution plan also includes a repayment of Rs 19,350 crore to the financial creditors of Bhushan Power.

On March 5, 2021, a majority of the financial creditors to Bhushan Power voted in favour of JSW Steel’s offer for the sale on a provisional basis, BloombergQuint had reported citing two people with direct knowledge of the matter.

JSW Steel’s resolution plan was approved by the National Company Law Tribunal in September 2019. But a month later the Enforcement Directorate attached Bhushan Power’s assets worth Rs 4,000 crore. That jeopardised the insolvency resolution until December 2019, when the central government amended the Insolvency and Bankruptcy Code to provide that criminal proceedings against former promoters will not affect a resolution applicant when acquiring a stressed firm.

The National Company Law Appellate Tribunal in February 2020 vacated the attachment of Bhushan Power’s assets and approved JSW Steel’s bid for the company. But the Enforcement Directorate moved the Supreme Court to argue that the IBC amendment should not apply to this case.

While the Bhushan Power matter is pending, JSW Steel in the filing cited Supreme Court’s ruling in a separate case (Manish Kumar v/s Union of India) where it upheld the constitutional validity of the Section 32A of the IBC, saying new owners can’t be held liable for actions of the previous management.

Bhushan Power was part of the first list of 12 companies that the Reserve Bank of India identified for immediate referral for bankruptcy proceedings in 2017.

Shares of JSW Steel closed 1.35% higher on Friday compared with a 1.27% gain in the Nifty 50.

Brokerages Takeaway

Brokerages see this acquisition as an attractive and inexpensive win, with temporary impact on the credit metric of the company.

Investec Securities

  • Upgrades JSW Steel to ‘buy’ from ‘hold’; target price at Rs 555 apiece.

  • Based on headline number, JSW Steel should pay an enterprise value of Rs 19,350 crore.

  • Finds Bhushan Power an attractive win given the EV, potential tax synergies and growth optionality.

  • Conservative Ebitda of about Rs 3,000 crore, implies inexpensive valuations at 4.8-5.1x EV/Ebitda.

  • Highlights that adverse pending appeals could reverse the taxation.

  • Economic value via Bhushan Power to outweigh dilution-related risks.

  • Target price doesn’t reflect tax synergy gains, growth optionality or incremental accrual of cash on books.

Nomura

  • Upgrades JSW Steel to ‘buy’ from ‘neutral’; raises target price to Rs 530 apiece from Rs 404.

  • Upgrades to ‘buy’ on improving spread outlook.

  • Rs 19,350-crore cost of Bhushan Power to have only a temporary impact on management’s target credit metrics.

  • Based on expectation of spreads, credit metrics are likely to be maintained within target ranges by end-FY22.

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