The landscape of India’s heavy industry has seen a drastic change this week as the Competition Commission of India (CCI) gave a legal sanction to a historical joint venture. The agreement is primarily between JSW Steel, which is the leading private company in India’s steel industry, and the Japan-based Metallurgical Giant JFE Steel Corporation. The core basis of this agreement is the changing necessity of India’s indispensability in the industry, which took its root from a distressed case of a company named Bhushan Power & Steel Limited (BPSL).
With the approval of the regulatory bodies, the two firms are poised to redefine the operational and financial model of the BPSL plant in the state of Odisha and usher a new dawn of foreign direct investment into the metals industry of India.
Capital Restructuring and the Terms of Engagement
The CCI clearance is related to a strategic equity restructuring, wherein JFE Steel Corporation is set to acquire a 28% minority stake in BPSL. This is the next step in the long association of the two companies over the last ten years; in fact, JFE is also currently holding a 15% stake in the parent company, JSW Steel.
The saga of BPSL dates back to a remarkable turnaround. JSW Steel first acquired the property back in March 2021 through the Corporate Insolvency Resolution Process (CIRP). This was after an intense bidding war, followed by a final agreement to pay around ₹19,350 crore. Since then, JSW has included the plant in their network. The plant was located in Jharsuguda, Orissa.
With the new JV arrangement in place, the injection of capital by the Japanese is expected to help JSW de-lever its balance sheet while maintaining control. The current steel production capacity at the Odisha facility is approximately 3.5 million tonnes per annum (MTPA) of crude steel. However, analysts consider the regulatory approval to be the signal for the first phase of an expansion plan to increase this to 5 MTPA in the immediate future, besides having the potential to produce even higher.
Strategic Logic: Solving the High-End Product Deficit
The main force behind this alliance is not capacity, but capability. India has been one of the most enduring steel markets worldwide, with an anticipated growth rate of 8 percent to 10 percent during the current fiscal year. Yet, a substantial quantity of high-quality steel used in India’s auto and power segments comes from abroad.
JSW-JFE partnership has been formulated to fill this ‘import gap'. Utilizing in-house manufacturing technology in Japan by JSW's partner JFE in India, BPSL will turn its focus to the production of “Value-Added” steels. This will include grain-oriented (GO) and non-grain-oriented (NGO) electric steel: a critical component in electric vehicle motor manufacture and high efficiency power transformers respectively.
Such technology transfer is in line with the Production Linked Incentive scheme announced by the Indian government for specialty steel. Both JSW and JFE intend to harness the rising demand for such types of steel in the renewable energy and EV sector, a vital constituent of the Indian ‘Make in India’ policy. The strategy is to shift BPSL from a commodity steel producer to a specialized metallurgical center, capable of rivalling the quality of imports from South Korea and China.
Market Outlook: The Road to 50 Million Tonnes
The future prospects of this joint venture have been seen to be of much wider significance to the Odisha region. For JSW Steel, this joint venture is one of the founding pillars of "Vision 2030". The firm has already made it clear that it wants to reach an installed domestic steel capacity of 50 MTPA by the end of the decade, an enormous expansion from its current position of 29.7 MTPA. The burden of partially sharing the capital expenses of the expansion of BPSL in an acquirable firm like JFE ensures that JSW Steel can pursue this speedy expansion of its steel capacities.
Moreover, the fact that JFE Steel is now a direct operational partner in an integrated steelworks is a significant signal to the international investing community regarding the viability and stability of the regulatory environment in India. With the international steel industry being forced to move towards a low-carbon future, the JSW and JFE partnership is likely to introduce newer ways to save energy in the process.
In the coming few months, attention will turn to the implementation of the Jharsuguda project extension. With the CCI approval being the final step in this process, it is anticipated that technical teams would flow in from Japan in a speedy manner, and the integration process would commence.
Ultimately, the evolution of Bhushan Power & Steel is a template for the future of this industry as a whole. “The revival of distressed assets as a basis for a low-carbon economy has a direct impact upon the supply chain for materials that ultimately affect the infrastructure needs of a developing nation such as India. For the Indian customer’s benefit as well as for the infrastructure needs of the Indian economy as a whole, it means a more stable supply of materials of a superior grade that are no longer susceptible to changes in global supply chains.”