Investment for deeper access to North American market

JSW Steel Limited has entered into a Stock Purchase Agreement on 28 March 28, 2018, for acquisition of a Delaware-based steel mill.

The agreement is with JSM International Limited, Acero Junction Holdings Inc and Acero Junction Inc for acquisition of 100% shares of Acero Junction Holdings Inc for a cash consideration of US$80.85 million.

The transaction is subject to fulfilment of conditions precedent and other terms as per the Stock Purchase Agreement, with a long stop date of 31st May, 2018.

Acero Junction Holdings owns 100% of the shareholding of Acero Junction, which is a steel manufacturing mill that uses the electric arc furnace route to produce hot rolled coils.

The Acero facilities include a 1.5 MTPA Electric Arc Furnace (EAF), a 35 MVA Ladle Metallurgy Furnace (LMF), a 2.80 MTPA, 1 x 2 strand slab continuous casting machine and a 3.0 MTPA Hot Strip Mill (HSM) for producing a wide range of steel grades in widths upto 2,000 mm wide and from thicknesses in the range of 1.5mm – 10 mm.

The company had undertaken an investment program to complete backward integration project to restart the EAF and Caster, which will need an additional investment of upto US$50 million.

On completion of the capex, estimated in about 6 months from completion of the transaction, there shall be a 1.5 MTPA fully integrated steel making facility, with excess HSM rolling capacity upto 3 MTPA.

JSW Steel can potentially utilise the excess rolling capacity through bought out slabs, or, evaluate further investments to complete backward integration opportunities, subject to market dynamics.

The total Enterprise Value of the transaction is about US$180.35 million, with equity value of US$80.85 million and liabilities of US$99.5 million, subject to closing adjustments.

The acquisition shall be funded by way of a combination of internal accruals from JSW and debt to be raised at Acero Junction Inc.

Located on a bank of the Ohio River, about 50 miles southwest of Pittsburgh, the facilities at Acero can serve the regional demand for hot rolled coils and deliver to more distant customers via the Ohio River system.

Thus, the plant is well located with easy access to rail, road, and river water logistics. It also provides potential synergies with JSW Steel’s existing US operations in Baytown, Texas.

The acquisition provides a unique opportunity for JSW Steel to establish its presence in Ohio and gain deeper access to the North American market.

JSW said favourable market dynamics for steel manufacturing in the USA, coupled with the growing demand in the USA which is currently a net importer of steel, particularly flat products, provides an opportune time for the company to enhance its presence in this geography.

Given the availability of key inputs like slab as well as a robust demand for hot rolled coils in the vicinity of this facility, at a low specific investment cost, this will be a value accretive transaction for the shareholders, said JSW. fii-news.com