No need to raise an instrument to retire debt: Jindal Saw

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The stock of Jindal Saw got cut nearly 5% intra-day as the company spins off its investment arm, Hexa Tradex today. For every shareholder with one share of Jindal Saw, five shares were offered as part of the demerger.

Indresh Batra, managing director of the company joins CNBC-TV18 to talk of the company's financial standing and highlight the way forward for the company.

Jindal Saw had raised money through external commercial borrowing to fund its FCCBs that were up for conversion a few months ago. Batra says that the interest rate on it is quite high at more than 300 bps above six months, and repayment would start in 2016.

The company currently generates revenue of about Rs 6,000 crore and has an order book of USD 700 million. "We want to maintain an order book of about Rs 4000 crore given the very volatile commodity market," Batra says.
 
"We have a net worth of about Rs 4500 crore and a long-term debt of Rs 700 crore," he says summarizing the company's financials. He says that with implementation of their projects such as mining in Rajasthan and the ductile iron plant in Abu Dhabi, significant cash flow will be generated. "Thus, repayment of loan is not an issue and we will not need to raise an instrument to retire debt," he says.

Below is the edited transcript of the interview. Also watch the accompanying video.

Q: This External Commercial Borrowing (ECBs) which you have raised about two months back, what is the interest rate that you are currently paying on them?

A: The ECB which we raised about three months back was to repay part of the foreign currency convertible bonds (FCCBs) which we did not get converted into shares. I do not remember the rate exactly, but it was at a very competitive price, more than 300 basis points above six months liable.

Q: I just wanted to get more perspective with regards to the ECB, how long is the loan and when does the repayment schedule start?

A: The tenure is about five years, so the repayment should be in the year 2016 because it got raised about three months back. It is a very small ECB, about USD 70 million compared to the total size and net worth of the company.

Q: Could you tell us what the outstanding FCCBs are if any, and the last update that we had was that your total debt was about Rs 2,500 crore, any plans to repay that?

A: We have no FCCB outstanding. They were redeemed about two-three months ago whenever they were due. In terms of our total debt position, our long-term debt is only Rs 700 crore while rest is our receivables and inventory which is primarily buyer's credit because we import our steel for our project; 80% of that is buyer's credit. It should get redeemed by March, the position should become significantly better.

We have a net worth of about Rs 4500 crore and a long-term debt of about Rs 700 crore. I think it is difficult to find a good balance sheet nowadays.

We think the Rs 700 crore which was raised primarily for implementing our expansion projects, be it mining in Rajasthan or ductile-iron plant in Abu Dhabi which should start commissioning from January to March quarter, there would be significant cash flows which should get generated.

Jindal Saw has remained a very conservative company in terms of balance sheet. We should be okay and I think we should be in a position to repay debt ourselves. We do not have to raise an instrument to retire a debt.

Q: What exactly does your order book stand at this point in time and what sort of incremental order flows could we see for the remaining half of FY12?

A: We operate in three segments. One of the segment is the large-diameter oil and gas pipe, where the order book is of significant size because the typical order size is about 100 million. We operate in seamless and ductile iron pipes, these are more short-term businesses.

Our current order book stands at about USD 700 million. We expect to receive significant orders in the large-diameter pipe segment, hopefully within November. For the rest of FY12, our stated position has been to maintain two-three quarters of order book. We are doing a current year revenue of about Rs 6,000 crore and want to maintain an order book of about Rs 4000 crore because it is quite a volatile situation with commodity prices in the market.

Q: Could you tell us what this investment arm, Hexa Tradex, that you are demerging today, contributed by way of revenues in profitability to your company?

A: It was an investment which Jindal Saw had, its value when we announced this scheme was about Rs 3,000 crore. Currently, it should be about Rs 2000-2200 crore. What we wanted to do was to separate the operating entity from the investment entity. These own shares of JSPL, JSW which are very strong and profitable. Hexa Tradex does not generate any revenues. It was an investment portfolio of Jindal Saw which has been separated, and now would be available to trade as the regulatory process gets completed. Every shareholder of Jindal Saw got one share for five shares held. This is one way he can unlock value if he wants to.

Q: Any plans to list Hexa Tradex?

A: Yes it is going to be listed, the record date was yesterday. I think whatever process the stock exchanges take, my sense is that it should be available for trading within two months from now.