JSW Steel Getting to Buy Bhushan May Be a Winner’s Curse

(Bloomberg) -- It would be negative for JSW Steel’s credit if the Indian co. is successful in buying debt-laded Bhushan Power & Steel via an auction “due to the possible winner’s curse from overpaying,” wrote Trung Nguyen, a senior credit analyst at Lucror Analytics.

JSW’s improved offer increases the likelihood of overpaying in a competitive auction: Nguyen

Creditors of Bhushan Power & Steel are poised to name JSW as the preferred bidder in a sale after JSW bid about 196b rupees, higher than rivals including Tata Steel, said people familiar with the matter, who asked not to be identified because the information is private. Bhushan is being sold through an Indian insolvency resolution process. 

The acquisition, if successful, will also be likely funded by debt as JSW has very little cash on hand: Nguyen

That would increase debt as well as leverage substantially until Bhushan can improve its operation to support such debt.

Lucror expects JSW to return to the market with a large USD Notes offering to fund the redemption of the $500m 2019s.

Maintains fundamental credit bias on JSW at stable, and notes that the JSW Steel curve appears to be fairly valued compared to Indian HY peers such as Tata Steel.

2018-10-18 04:33:35.856 GMT

​By Finbarr Flynn