Singapore — India's JSW Steel has signed an agreement with Switzerland-based Duferco International Trading Holdings to repay a $700 million loan with physical steel deliveries over five years, the steelmaker said Saturday.
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The deal, brokered by BNP Paribas, Citibank, Credit Suisse, ING, Mashreqbank, Natixis, Societe Generale and Standard Chartered Bank, is unusual for the steel sector, as steel is challenging to hedge due to a lack of a liquid futures market.
"This unique financing structure provides JSW long-term funding to complement its plans for future growth secured by committed exports of steel products to DITH," JSW Steel said in a statement.
"For DITH, the transaction assures a captive supply of various steel products from JSW over the term of the APSA [supply agreement]. The deal is the largest trade finance facility to have been arranged in the Indian steel sector," JSW Steel added.
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The deal comes as Indian steelmakers grapple with falling exports. India's finished steel exports over April 2018, when the country's financial year began, to January 2019 totaled 5.15 million mt, down 37.3% from the same period a year earlier, latest data published by the country's Joint Plant Committee showed.
In a recent financial report, JSW said its October-December 2018 sales were down 7.3% on year at 3.68 million mt, which it attributed to a decline in exports.
"This [deal] not only enables JSW to raise funds at competitive rates but also assures incremental volume of sales in export markets leveraging the wide spread global network of the DITH group of companies. This transaction is a win-win for both the organizations," said Seshagiri Rao, joint managing director and group chief financial officer of JSW, noting pre-payment deals of this nature were rare in the steel sector.
JSW and Duferco signed a similar deal in 2006 that was worth $150 million over seven years. JSW has 18 million mt/year of crude steel production capacity and plans to more than double this to 40 million mt/year within 10 years. DITH has annual steel sales of 12 million mt/year.
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