Forging the steel deal


The biggest and longest tenor limited recourse pre-export finance facility for an Indian company signed in August. The facility, with a door-to-door tenor of seven years, is also the first of its kind project lending in the form of pre-export finance in India.


India’s JSW Steel sought finance to implement a US$1.1bn three-year project to increase basic steel making capacity from 4.1mn tons per year to 6.9mn. Funds will also reduce the company’s cost structure, enabling JSW to become a world-leading steel company in terms of cost competitiveness.


ABN AMRO as mandated lead arranger was joined by KBC, KfW and Standard Chartered Bank to raise a US$150mn loan. The deal is structured as a pass-through pre-export facility with the funds being advanced to commodity trader Duferco for the pre-payment of steel from JSW. The facility is repaid through the delivery of steel products from JSW to Duferco.


A separate one-year US$50mn club loan was also secured through ABN, with DBS Bank, Fortis Bank and Standard Chartered. The structure here mirrors the larger facility except that, instead of Duferco as the borrower, it uses an SPV, with Duferco acting as end buyer of the steel products delivered to the SPV by JSW.


The deal is the first structured transaction in India for ABN for several years and is the debut medium-term borrowing for JSW in the international syndicated loan market, utilising only international banks without any Indian banks participating.


It is also the longest structured transaction entered into by an Indian commodity producer and is the first time that a structure of this type has received Reserve Bank of India approval. As such, the structuring and execution raised a number of challenges on several fronts, claims a spokesman at ABN AMRO.


“The pass-through structure allowed for the proper security to be granted in order to achieve the seven-year tenor required for the approval from the Reserve Bank of India,” adds the spokesman. “The structure also allowed for the monthly amortisation (based on monthly shipments) and proper monitoring of the financial standing and export performance of the exporter. In addition, price risk of steel was addressed through top-up clauses, advance ratios and other covenants based on the value of the export contract.”




Deal information:


Borrower: Duferco
Amount: US$150mn
Mandated lead arrangers: ABN AMRO;KBC; KfW; Standard Chartered Bank
Participants: Banque Cantonale Vaudois; Aozora Asia Pacific Finance
Tenor: 7 years
Margin: 170bp
Law firms: Bernasconi, Peter, Gaginni; Rajani Associates (borrower); Clifford Chance (lenders)
Offtaker: Duferco
Date closed: August 2006