• OUTLOOK ARENA
  • VIEWS ON NEWS
  • MARCH 6, 2000

Jindal Vijaynagar to securitises its way through trouble

According to newspaper reports, Jindal Vijaynagar Steel Limited (JVSL) is contemplating a move to securitise Rs 2 bn worth of receivables from sale of hot rolled coils (HRCs). The deal has been structured by ICICI.

JVSL, an O P Jindal group company, owns and operates a 1.6 million tonnes per annum steel plant. The company has of late been facing cash flow related problems in view of its large debt servicing costs and the delayed recovery in the steel sector.

The company has entered into an agreement with an Australian company, which will be souring the HRCs from JVSL.

JVSL has been facing a cash crunch in view of the failure of its shareholder's to exercise a call option to buy equity in the company. Further to this, the Industrial Finance Corporation of India (IFCI) has also failed to sanction an agreed amount. The decision to securitise receivables will enable JVSL to source funding for its project, that are under various stages of completion. ICICI is to forward the funding at a discount to its long term funding rate.

The sharp recovery in the demand for steel and the relatively mild recovery in prices have dramatically improved the prospects of the company, which has faced a significant cost overrun due to a high debt burden (high interest costs). The improving prospects for the steel sector are however likely to benefit the company in sourcing its funding requirements and enabling a faster breakeven.

The key concern facing the company pertains to the possibility of a decline in prices of steel if domestic and international demand were to falter. This is mainly due to the fact that the company's costs of production are high and in a scenario of declining prices it would not be able to effectively compete with other large capacity - more efficient steel companies like Tisco.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst) 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407