Bhushan Power deal only after ED lifts attachment: Seshagiri Rao, Jt MD, JSW Steel

Highly-leveraged steel companies have been the worst hit by the Covid-19 crisis with the sharp fall in demand and uncertainty over government spending on infrastructure projects. Steel producers were dependent on the export market to make up for the drop in domestic demand. However, how long the export market will support domestic steel producers is the billion dollar question. BusinessLine spoke to Seshagiri Rao, Joint Managing Director, JSW Steel, on the future prospects of the company and the sector. Excerpts:

We are expecting a slow recovery in India; it may take up to six months for demand to pick up. In April, steel demand had fallen by 91 per cent, but in May there has been a slow recovery. Despite so many announcements by the government and the RBI, the credit flow to the industry has come down instead of going up. Most migrant labourers working at the plant site have left for their native places. Now there is a huge problem in loading and unloading goods while construction work has come to a halt. It is important to bring back labourers and get them gainfully employed. On the logistics side, trucks and rakes are available but there are no drivers. If we manage to get drivers, there are no labourers to load and unload. Once the truck is loaded, somehow it has to pass through containment zones which again is a tricky issue. It takes a long time for the consignment to reach customers. Though announcements have been made in the right direction, things on the ground look different.

We had followed the industry in reducing production. We took a complete shutdown on March 25 and restarted production on April 20. We have not accrued inventory as production was stopped at the right time. Our inventory was 9.5 lakh tonnes in the March quarter, against 11.5 lakh tonnes logged last year same quarter. If not for Covid-19, we could have maintained even lower inventory. When we stopped production, the capacity utilisation was 38 per cent and now (in May) it has been ramped up to 85 per cent. Next month, we can increase it to 90 per cent but the question is where do we sell.

May not be this year. Our overseas operations have been hit by both Covid-19 and lower crude prices. The US economy traditionally is driven by energy, be it shale gas, oil drilling or laying pipelines. Fall in crude price will reduce investments in all these sectors. We have completely provided for mining operations in Chile and 50 per cent for the US operations. Our Chile mines will be (under) care and maintenance for the whole of this year.

The rating agencies’ negative view is on the entire sector, and is not particular to JSW Steel. They have downgraded all steel companies, starting from ArcelorMittal. It is a sector-specific issue and the problem is the same across companies. The debt will look big if EBITDA halves suddenly. We have done much better on the sale side compared to last year. The fall in EBITDA is a temporary phenomenon. The funds we are looking to raise is only for refinancing and will not push up the debt level. Funds will not be raised immediately. Today, markets are completely dislocated and it is not the market to tap for funds. Once the Covid-19 vaccine comes to the market, things will stabilise and we will raise funds then. We are taking approval for fund-raising from shareholders and the board, and will tap the market at the right time.

Absolutely not. We are keen to close the deal but not before the Supreme Court decides on litigations and the Enforcement Directorate lifts the attachment. The NCLAT has given certain orders but the ED has not followed these orders. We are agitating because the ED had attached the property and threatened to go for appeal against the NCLAT order but has not done so. In the hearing held on March 6, the ED counsel said they are going for appeal. After they file the appeal, Supreme Court has to hear them and given directions. Till then we will wait. We will close the deal only after the ED lifts the attachment. Of course, it is worrying that a bid which was submitted during the steel cycle uptrend three years back is getting closer to completion (only) now. However, our acquisition is for the long term and does not change due to the up and down trend in steel.

Globally, steel prices have come down by 15 per cent. However, in the last 10-15 days, steel prices have gone up by $20-25 a tonne as iron ore prices increased to $100 a tonne. On the other side, there has been a huge cut in production. Excluding China, global steel production in the first four months of this year has come down by 10 per cent, and including China it fell 4 per cent because the latter has not cut production. Japan’s output itself fell by 24 per cent; the story is the same in Europe. If China continues to consume the steel it produces and other countries cut output to match lower demand, then the downside for steel prices looks unlikely.