STRATEGIC FOCUS AREAS > S5
PRUDENT FINANCIAL MANAGEMENT
S5
PRUDENT FINANCIAL MANAGEMENT
We have always strived to maintain an optimal capital allocation policy and disciplined treasury management to strengthen our balance sheet. Over the years, this strategy has strengthened our financials and helped us accelerate our growth strategy. Our approach has always been to grow sustainably and with financial prudence.
Material issues
M9 Debt profile
M10 Diversified sources of funding
M11 Credit rating
M5 Turnaround of non-performing units
M12 Profitability
M13 Liquidity and cash flow
Strategic drivers and operating context
During FY 2019-20, various macro trends dampened the financial sector’s sentiment, and the liquidity scenario in India was not encouraging. A conservative lending landscape translated into higher credit costs and less avenues for capital raise. However, fundamentally strong and well-rated businesses like JSW Steel managed to receive funds from diverse global and Indian sources to support our ongoing projects and seek more vistas of growth.
Action plan
Key metrics
1.48x
NET DEBT TO EQUITY RATIO
4.50x
NET DEBT TO EBITDA RATIO
A1+
SHORT-TERM CREDIT RATING BY ICRA
AA-
BY ICRA AND CARE RATINGS FOR LONG-TERM DEBT FACILITIES / NON-CONVERTIBLE DEBENTURES (NCDS)
`3,966 crore
CASH AND CASH EQUIVALENTS
Key risks
R6 Foreign exchange and interest rate fluctuations
R7 Declining global liquidity
R8 Mergers & acquisitions
Executing successful and successive fundraises
FY 2019-20 reinforced JSW Steel’s credibility as a fundamentally strong organisation with us receiving large-scale funding from the global investment community. At the start of the financial year, we had announced a fundraise of up to US$ 1 billion, using dollar-denominated and non-convertible bonds.
In April 2019, we went on to raise US$ 500 million, and received subscription offers worth US$ 1.75 billion in offers. The dollar-denominated bonds, maturing in five years were offered at a coupon of 5.95%.
In September 2019, we further issued bonds worth US$ 400 million at a coupon of 5.375%. The capital received from both these funds will fuel our capex plan and other corporate expenditure. The issue was rated Ba2 by Moody’s and BB by Fitch and will be traded on the Singapore exchange.
Additionally during the year, we also raised fresh funds worth ` 2,000 crore through a private placement of 20,000 listed, secured, redeemable, NCDs bearing a face value of ` 10 lakh each at a 8.79% coupon (payable semi-annually for 10 years). The proceeds from this offer will be used to service long-term working capital requirements, refinance existing debt, fund general corporate purpose and for ongoing capital expenditure.
Operating EBITDA movement
OPERATING EBITDA MOVEMENT- STANDALONE
(` crore)
NET DEBT MOVEMENT – CONSOLIDATED
(` crore)
NET DEBT
(` crore)
CASH & CASH EQUIVALENT
(` crore)
NET DEBT/EQUITY
(x)
NET DEBT/EBITDA
(x)
Leverage management and capital allocation
Our prudent leverage management policy relies on well-diversified sources of funding, which enable an optimum cost of capital in our books. Complementing this, we foster a disciplined treasury management approach, which has enabled us to strengthen our balance sheet and significantly improve our financial profile over the years.
Key features of our leverage management and capital allocation policies:
- Allocation of capital among various competing capital expenditure projects across locations, with the least payback periods and compliance with environment and safety-related aspects
- Calibration of all capital expenditure projects, mergers and acquisitions to ensure that the leverage ratios are within the acceptable levels
- Continual consideration of financing and refinancing opportunities to service capex requirements. These are sought with an objective to diversify our obligations, reduce interest cost and lengthen the debt maturity profile
- Diversification of sources of financing through the right mix of rupee and foreign currency denominated debt, External Commercial Borrowings (ECB), NCDs and structured trade solutions
- Maintaining a competitive borrowing rate by balancing fixed and floating interest rates, in addition to diversified sourcing of funds. Further, pursuing Interest Rate Swap (IRS) as a risk mitigation strategy, hedging floating rate Foreign Currency Loans (FCLs)
- Hedging cash flows up to a specific tenure using a mix of derivative instruments and options. Our hedging strategy for commodity is based on its procurement schedule, price risk and economic benefits through swaps
- Financial flexibillity to raise capital
- Strong relationships with over 50 banks/financial institutions with access to low-cost credit
- Healthy mix with 54% of debt being foreign currency
DIVERSE SOURCES OF FUNDING
(%)
MATURITY PROFILE OF LONG-TERM BORROWINGS
(US$ in million)
Capex management
Our capex programme is a reflection of our drive to grow with India. Even amidst a challenging external environment, we largely maintained our capex goals to achieve enhanced and more efficient production capacity. Simultaneously, we also exercised prudence and flexibility in capital allocation in the face of weak prices and the resultant effect on our EBITDA during the past fiscal. Of the ` 15,708 crore capex planned for FY 2019-20, we deferred ` 4,708 crore to FY 2020-21. The deferred capex was primarily allocated for our overseas operations and special projects.
ROLLING CAPEX PLAN – ANNUAL UPDATE
(` crore)
1 After adjusting savings of ` 200 crore
2 Excluding ` 1,200 crore of upfront payment which will be adjusted from the premium payable on extraction of iron ore from the respective mines
Consolidation to enhance efficiency
To consolidate operations and ensure better management, we merged our wholly-owned subsidiaries, Dolvi Minerals and Metals Private Limited, Dolvi Coke Projects Limited, JSW Steel Processing Centre Limited, and JSW Steel (Salav) Limited with the standalone entity. This was signed off by our Board of Directors in October 2018 and further approved by the Ahmedabad Bench of the National Company Law Tribunal (NCLT) in August 2018. Accordingly, we have accounted for the merger under the pooling of interest method retrospectively as prescribed in IND AS 103 – Business Combinations of entities under common control.
OUTLOOK
Near-term
Rating upgrade across domestic and international agencies
Acquiring asset via the Insolvency and Bankruptcy Code (IBC), with minimal impact on balance sheet
Long-term
Projects to be funded by debt and internal accruals with net debt to EBITDA and net debt to equity within levels of 3.75x and 1.75x, respectively
Diversify sourcing of funding with the right mix of rupee and foreign currency debt
Be among the top five steel companies globally in terms of RoCE
