| The money plant grows: Jindal Steel and Power’s unit at Raigarh
Mumbai, July 28: Jindal Steel & Power (JSPL) has joined the ranks of steel companies that are using the double-barrelled advantage of hardening prices and soft interest rates to borrow cheap for capacity expansion.
JSPL, like other companies in the industry, is now in a position to raise finance at attractive, single-digit rates. The sponge iron major, part of the . P. Jindal group, is gearing up for a Rs 550-crore drive that will give it the ability to roll out more steel and generate a greater quantum of power than it does at the present juncture.
The expansion plan is being funded in a debt-equity ratio of 1:1, and JSPL appears confident of securing loans at an average cost of less than 8.5 per cent — a rock-bottom rate that would seem fanciful until a few years back.
“It is a very ambitious interest rate. The company has been performing well for the last five years with profitability on the rise. The confidence of banks has also gone up as risks associated with JSPL are considerably lower at this point,” said a confident Sushil K. Maroo, vice-president (corporate finance), of JSPL.
Maroo said negotiations with banks and financial institutions to arrange the debt component of Rs 275 crore are under way, and should end with attractive rates. JSPL, he said, was even open to the idea of an external commercial borrowing (ECB) to part-finance the expansion.
The rates at which such companies can raise funds for their expansion plan, therefore, is a far cry from the 16-18 per cent they had to fork out a decade ago.
The change can be attributed to the soft interest rate regime under which the benchmark bank rate is at a 30-year low, coupled with an improvement in the fortunes of the steel industry — on the ropes until two years ago.
So heady are companies that they are ready to jack up steel prices by Rs 500-1000 per tonne from next month. A spokesperson for a leading company said hot rolled coils would cost Rs 18,500 per tonne after the revision.
The planned hike will be the second to be announced in this financial year. Last month, steel companies had raised prices by at least Rs 500 per tonne.
JSPL’s two-stage plan will result in the company’s sponge-iron capacity rising to 13.1 lakh tonnes, an addition of 6.60 lakh tonnes. It will also give the company the ability to produce 255 MW of power, up 50 MW.
The steel melting shop will roll out 1.15 million tonnes once the revamp, to be completed by September 2005, is through. In all, Rs 375 crore will be invested in the first phase, during which the sponge iron capacity will rise by 3.3 lakh tonnes and power generation by 25 MW. In the second, the remaining Rs 175 crore will be pumped in to achieve similar increments in capacity.