JSW Steel has announced plans to invest ₹40,000 crore in the next three years, even as lending rates continue to rise globally. Seshagiri Rao, Joint Managing Director, JSW Steel, in an interview with Sources exuded confidence about the revival in steel demand holding and the company maintaining financial matrix despite huge capex. Excerpt:
How do see progress of NCLT cases in last one year?
All the issues relating to NCLT cases have revolved around two important points — intention of Insolvency and Bankruptcy Code (IBC), and Section 29A. If IBC is only for maximisation of asset value notwithstanding the process, then anybody can interrupt the process to place a higher bid. As of now, the judgement in different cases are contradictory. There needs to be clarity on whether Section 29A is directory or mandatory. If it is directory then defaulting promoters can also offer higher value. Unless these two issues are sorted, there will always be litigation and finally the Supreme Court has to take a call.
What is your view on changes being made in IBC?
The latest Ordinance allows lenders to withdraw insolvency cases if 90 per cent of them agree and certain conditions are adhered to. But the conditions to be met have not been prescribed. However, a press release issued in this regard states that cases can be withdrawn only before Expression of Interest is issued. Whereas, the Ordinance does not mention this. This issue needs a clarification from the government.
What is driving steel demand in India?
The economy looks better now as compared to last year. In May, steel demand increased 8.6 per cent. The demand is so strong that there is a concern on availability of steel. For the first time in last five years the demand has grown 1.2 per cent of GDP. Last fiscal, the demand used to be 0.4 per cent of GDP and at times it even lagged GDP growth. The demand has picked up in user industry after a long time. Now everybody has started expanding capacity. The government spending is also quite robust.
Will the rise in interest rate impact steel demand?
Increasing in inflation and oil prices is not a good scenario. It will also have an impact on rupee-dollar value. However, steel demand and investment cycle is reviving after a long time. So a small increase in lending rate will not have make a big dent. But if oil prices continue to hike go up, rupee depreciates further, and inflation sustains at higher level it is definitely not a good sign. I do not think this situation will continue.
Will you review have relook at your capex with as interest rate continue to rise going up?
We have already factored in 40 basis points (0.40 per cent) increase in rates this year. Interest rates are increasing going up globally as well. We are raising fund on floating rate instead of locking our rates when it is increasing going up. Majority of our debt is being raised overseas. Raising interest rate may not sustain for long. Nearly 75 per cent of our debt is on floating rate. Yes, in absolute number our debt may increase because of capex, but we will always maintain our ratios. For instance we have guided debt to Ebitda ratio of 3.75 and debt to equity ratio of 1.75 and will adhere to this.
How do you see the global trade war impacting steel demand in India?
Any trade related decision by one country will lead to retaliation by the other. Whether it is good or bad only time will tell. These actions are required in unfair trade. The current trade war will have a huge impact on the global economy. I am not concerned about the fall in steel exports from India as long as there is no sharp rise in imports into India.
How do you compare India and US trade restrictions?
Indian trade restrictions are not comparable with the US. There is a 25 per cent duty on steel imports to the US. That is why HR coil prices in the US are higher by $250-$300 a tonne compared to $600 a tonne in other markets. India should work out safeguard duty.
Has the iron ore supply increased?
Iron ore demand in Karanataka is more than exceeds the supply. That is exactly why the prices in the State is higher than Orrisa or Chhattisgarh. Competitiveness of among steel companies in the State are is affected as compared to the companies in other States. We have requested mining companies including NMDC to adjust correct the prices. They have reduced the prices but more needs to be done.
Is it time to remove e-auction of iron in Karnataka?
Removing the e-auction is one of the request made by the industry and mining companies to Supreme Court. There was no checks and balances when the restriction was imposed. Today everything is computerised and closely monitored.there is a very close monitoring. The e-auctioned can be dispensed but Supreme Court has to take the call.
Are you looking at acquiring more mines?
Eight mines were suppose to be auctioned but clarification has been sought in the Supreme Court. Today, category ‘C’ mining is independent of Mining and Mineral Development Act rules, but now the government wants to align it with the Act which states that captive miners can sell 25 per cent in open market and use the rest for captive purpose. Currently category ‘C’ mine owners cannot sell in open market. Once this is settled more auction will take place happen.
Source: Business Line, July 13, 2018