At a time when instability in the US leveraged buyout (LBO) market is making world equities markets jittery, JSW Steel is planning a leveraged buyout of a North American steel company.
JSW Steel vice chairman and MD Sajjan Jindal told Business Standard the company would have "some equity contribution" for the acquisition of the target rolling mill, while most of the cost will be raised by leveraging the target company's balance sheet.
Jindal, who did not name the target company, said the due diligence for the proposed acquisition, which could cost JSW around $1.2 billion (Rs 4,800 crore), had begun and would be complete by the end of the month.
Jindal said he would ship slabs from his facilities in Vijayanagar and West Bengal, where he is setting up a 10 million-tonne capacity plant, to the target company for conversion into finished products.
Analysts said Jindal would probably contribute $200 million and raise $1 billion through the LBO route to fund the acquisition.
Uncertainty in the US LBO space rocked world equities markets, including India, over the past week. The Sensex lost 7.4 per cent in two trading sessions. Many big-ticket mergers and acquisitions, including Cadbury Schweppes, were deferred.
Investment bankers are divided over Jindal's plans. A banker who had recently advised an Indian steel major in an overseas acquisition said there was no logic in this route when "the LBO market in the US is virtually dead".
Another banker who advised a domestic company on its leveraged purchase of a global major said the decision showed Jindal was banking on a revival of the LBO market in two months, when he would needs the funds.
However, he added, Jindal might pay a higher interest rate in September than he would have if the deal had taken place a few months ago.