JSW Steel taps Japan's MUFG for funding Australian coking coal mining company acquisition 

JSW taps MUFG for Australian coking coal acquisition

JSW Steel Ltd has tapped Japanese lender MUFG Group for financing its acquisition of a coking coal mining company in Australia, people familiar with the matter said.

The development assumes significance as most major global banks have limited their exposure to fossil fuel assets amid growing pressure over climate change, making it difficult for companies to access funds for financing the acquisition of such assets.

On August 12, the board of JSW Steel approved the acquisition of up to a 66.67 percent economic interest in Australian mining company M Res NSW HCC Pty Ltd (M Res NSW) for $120 million.

The investment will be made via the Sajjan Jindal-led company's wholly owned subsidiary, JSW Steel (Netherlands) B.V. The deal involves subscribing to non-voting Class B shares in M Res NSW. As part of the agreement, JSW Steel also committed to investing an additional $50 million by 2030 to cover the company's deferred payment obligations.

The sources cited above added that JSW Steel has raised the entire acquisition finance from MUFG alone at close to 12 percent per annum for a tenor of three years, after which it will refinance the loan facility via foreign currency bonds.

“As per our bank's policy, we do not discuss matters pertaining to our clients, and, as such, will decline any comment on this matter,” said a spokesperson for MUFG in an email response to Moneycontrol’s query. An email sent to JSW Steel did not elicit a response.

Fossil fuel financing

The funding for the acquisition of the coking coal asset comes at a time when large global banks are limiting or cutting their exposure to fossil fuel assets amidst a bid to meet their ambitious net-zero emission targets.

On the other hand, two Japanese banks - MUFG and Mizuho - featured among the top five fossil fuel financiers globally in 2023, according to the Banking on Climate Chaos 2024 report, highlighting the growing significance of Japanese lenders in the fossil fuel financing arena, where Western lenders are ceding space.

MUFG, with a funding of $15.4 billion, ranked the third-worst among financiers of fossil expansion companies last year, while Mizuho featured second on the list, with a financing of $18.8 billion.

Securing coking coal supply

The Australian company in which JSW Steel is acquiring a 66 percent stake holds a 30 percent stake in Golden M NSW Pty Ltd (Golden M). Golden M is going to own Illawarra Coal Holdings Pty Ltd (Illawarra Metallurgical Coal), which runs the Appin and Dendrobium coking coal mines in New South Wales, Australia. These mines have about 99 million tonnes of high-quality coking coal, a key steel-making ingredient

"A secure supply of this high-quality coking coal allows for superior blast furnace operations and provides JSW Steel with coal-blending options. Given the limited visibility of additional capacity premium hard coking coal assets, this acquisition is an important step in securing raw material for JSW Steel," the company said.

Indian steel mills import coking coal from Australia, Russia and the United States. Any disruptions in the supply chain can expose them to significant price increases and operational challenges.

In May, JSW Steel had announced the acquisition of Mozambique-based mining company Minas de Revuboe, to benefit from its 800 metric tonnes of premium hard coking coal reserves in Mozambique.