Japan¡¯s JFE Steel will invest 157.5 billion rupees ($1.7 billion) in an equal joint venture with India¡¯s JSW Steel, the Japanese company said in a statement.
The newly formed unit will incorporate JSW¡¯s subsidiary Bhushan Power & Steel¡¯s steel mill in Odisha at an equity value of 315 billion rupees, according to the statement. The transaction will be executed in two tranches, with JFE acquiring 25% in March next year and the remaining around June, it said.
Demand for steel in the South Asian country is surging, led by a push for infrastructure projects by the government and growing real estate construction, prompting large steelmakers such as JSW Steel and Tata Steel to expand capacity. India aims to nearly double its crude steel production capacity in the next five years.
The venture plans to expand production capacity at Bhushan¡¯s integrated steel mill to 10 million tons a year by 2030, from 4.5 million tons now.
¡°This is a strategic investment where JFE is looking to participate in the India growth story,¡± Sumangal Nevatia, director at Mumbai-based Kotak Securities, said by phone. ¡°JSW lowers leverage and unlocks growth opportunity.¡±
JSW had acquired Bhushan Power through a debt resolution process and the deal was upheld by India¡¯s Supreme Court in September, after reviewing its earlier judgment. JSW Steel shares dropped as much as 5%, the most since Sept. 22, following the announcement.
The new venture expands existing partnerships between JSW Steel and JFE Steel in India. In August, the companies announced plans to jointly invest about 58.5 billion rupees to expand grain-oriented electrical steel production capacity through their two ventures. Before that, the two acquired Thyssenkrupp Electrical Steel India for 41.6 billion rupees through an equal joint venture.
JFE Steel aims to achieve overseas business profit of ?200 billion ($1.3 billion) by fiscal year 2035, and expects the venture to account for at least a quarter of those, Hiroyuki Ogawa, executive vice president of JFE Steel said in a briefing.
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