Lenders are tightening the funding terms for Jindal Steel’s Bengal project, raising the spectre of a delay in the execution of the state’s largest steel plant.
The banks and financial institutions have laid down two conditions: first, they want the promoters to stump up more cash in the form of equity, so they are tightening the debt-equity ratio to 1:1 from an earlier 2:1. The Jindals may now have to put up Rs 50 billion in the first phase of the Bengal plant instead of Rs 3.3 billion earlier.
Second, the lenders led by the State Bank of India and ICICI Bank have asked the Jindals to stabilise the Bellary plant in Karnataka before embarking on any new project.
Jindal’s JSW Bengal has planned to set up a 10-million-tonne plant in phases at an investment of Rs 350 billion.
The first phase of 3mt has been broken up into two parts. Initially, an iron ore beneficiation and a pellet plant along with coal mines at Sitarampur and Kulti will be developed at a cost of Rs 40 billion. Later, the 3mt steel making unit will be set up at a cost of another Rs 60 billion.
The first phase is expected to be complete by the end of 2012 – a commitment that Sajjan Jindal made on November 2 when chief minister Buddhadeb Bhattacharjee laid the foundation stone for the steel project at Salboni.
JSW officials said the company would take a call on the project in March. However, the decision could be further delayed. The company’s Bellary plant was expanded from 3.8mt to 6.8mt in September 2008 but it did not use the extra capacity as steel demand floundered.
JSW now hopes to start production at Bellary in March. Industry experts say it can take a few months before production stabilises there.
Steel prices have continued to fall and this will make it harder for the company to raise funds for expansion.
The company could put the steel making facility at Salboni on hold even as it goes ahead with plans to build the mineral processing plant. Bankers could be persuaded to fund such a venture because of the lower risks. Even then, Jindals may have to bring in Rs 20 billion in the form of equity instead of Rs 13.33 billion originally considered.
“Cash is a real problem now,” said Biswadip Gupta, CEO of JSW Bengal. JSW Steel holds 89 per cent in the company with the rest being held by the Bengal government.
“However, we are going ahead with prospecting at the Sitarampur and Kulti coal blocks,” he said without saying when construction work could begin.
The company is hoping that margins will improve in the next few months when it renegotiates coking coal and iron ore contracts at lower prices. Like other steel makers, JSW Steel was caught in a bind when the prices of the finished product — steel — fell by a third even as it remained locked into high-priced raw material contracts.
Source: Caclutta Telegraph
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