Sajjan Jindal’s Ispat deal is the biggest consolidation move in the Indian steel industry. His next challenge: Make the company profitable in a year
There was no sign of a sleepless night on Sajjan Jindal’s face as he strode in for the 3 p.m. press conference on December 21. Just 10 hours earlier, at 5 a.m., he and his company JSW Steel’s board members had finished a five-hour meeting at Jindal Mansion, the Mumbai headquarters of the JSW Group. Before that, they had been in another marathon meeting with the lenders to Ispat Industries. But Jindal was his usual alert, smiling self. After all, it is not often that one makes the biggest consolidation move in the Indian steel industry and emerges successful.
JSW Steel had acquired a 41.29 percent stake for Rs. 2,157 crore in Ispat, a company promoted by brothers Pramod and Vinod Mittal. Now, with Vinod sitting beside him at the press meet, Jindal was quick to note that the deal had taken only eight days to complete. “It is a record time,” he said.
Jindal had moved quickly and decisively when it became apparent that Ispat was up for grabs.
JSW Steel wasn’t the only suitor. Vinod’s eldest brother, Lakshmi Niwas Mittal, owner of the world’s largest steel maker ArcelorMittal had been interested too. In November and early December, a high-level team from the London-based company visited plants of the beleaguered Ispat, which needed urgent infusion of money. Due diligence was done and the Mumbai-based firm was valued at $3 billion. But, when time came for a decision, Lakshmi Mittal decided not to go ahead.
“There were issues relating to corporate governance. The deal would have been seen as an older brother bailing out his sibling. It would have been highly sensitive for ArcelorMittal’s board and shareholders in Europe,” says an industry executive who worked closely with the Mittal family. Another big hurdle, of course, was Ispat’s $2 billion-plus debt that would add to ArcelorMittal’s $20 billion burden.
When the older Mittal withdrew, “it was an open field for others”, says a senior official at JSW Steel. But for Sajjan Jinadal to make the decisive move, he needed to clear confusion within his own family. Jindal Steel and Power (JSPL), headed by his younger brother Naveen, was also interested in buying a stake in Ispat. “We had taken a look at Ispat. But once JSW was interested, we withdrew. We don’t compete within the family,” says a senior official at JSPL.
With family matters taken care of at both ends, Jindal gave a glimpse of why he is known as a quick and able executioner of projects. Aware that at least five other suitors, including the Welspun Group and British trading giant Stemcor, were in the fray, Jindal personally called Vinod Mittal and made his interest in Ispat official. Personal ties between the two families (Jindal’s sister and Mittal’s wife are close) helped. So, while teams from both companies prepared and shared reports, Jindal visited Ispat’s Dolvi plant in Mumbai’s suburbs and realised the asset was good; only some “raw material management” and “financial discipline” was needed. Over the next two days, the two promoters met several times, mostly at Jindal Mansion, accompanied by their sons, Parth Jindal and Atulya Mittal.
Apart from family ties, one more factor helped Jindal close the deal quickly. Ispat’s lenders, including IDBI, ICICI and IFCI, were trying to save the Rs. 9,500 crore they had lent over the last 10 years. “Since the middle of 2010, monthly interest payments of at least Rs. 70 crore had stopped coming from Ispat. Had the defaults carried on, lenders were worried the loan could be bracketed as a non performing asset,” says a retired senior official of one of the lenders. Sources said December 31 was the deadline that the lenders had for Ispat to find an investor.
When Jindal sat with Ispat’s bankers a day before the deal was announced, they were not ready to let go easily. Only hours earlier, IDBI had won a hard bargaining position by sending a notice to the Ispat management. The bank wanted to convert part of the pledged shares into equity as Ispat had failed to make interest payments. “If the conversion had happened, it would have made the deal much more expensive for JSW,” says a senior official. Jindal cajoled the bankers. IDBI relented and Jindal agreed to their terms, the main one being that the lenders can convert the shares into equity at a rate of Rs. 14.74 a share, not more. By midnight, action shifted to Jindal Mansion, where JSW’s board discussed the deal. When the meeting got over five hours later, Jindal knew that within six months he was going to be the largest steelmaker in India (adding JSW Steel’s to-be added capacity and Ispat’s 3.3 million tonnes of annual production).
Two Families, Two Results
(This story appears in the 14 January, 2011 issue of Forbes India. To visit our Archives, click here.)