Australian BlueScope Steel Enter $1.4B JV With Japanese Steelmaker Nippon Steel Corp.
BlueScope Steel, Australia's largest steelmaker, on Monday announced it is poised to create a $1.4 billion joint venture with Japan's Nippon Steel Corp., after agreeing to sell half of its coated products operations also to the latter for $US540 million.
All these developments meant to stabilise company operations and performance as BlueScope Steel, it expected to report a full-year loss of $1 billion for the year ended June 30 after impairment charges on Australian operations restructuring.
Shares of BlueScope Steel reacted favourably to the announcement, as shares soared 11.5 cents, or 44 per cent, to 37.5 cents in early trade. Sydney Morning Herald reported observations stock turnover hit 26 million shares in the first 10 minutes alone, which was already equal to the full-day average over the past year.
The JV will be called NS BlueScope Coated Products, Melbourne-based BlueScope Steel said in a statement.
"No gain or loss will be recorded on BlueScope's income statement because the deal will be recognized within equity," the company said.
Analysts from CLSA and Merlon Capital Partners heralded the development.
"The price looks attractive from BlueScope's point of view when you compare it to the group's current market capitalisation," CLSA analyst Scott Hudson told Deal Journal Australia.
Judging the proceeds to be generated from the joint venture, BlueScope Steel would be in a cash neutral position in early calendar 2013, he added.
"Today's announcement eliminates lingering fears of a capital raising, which have been unfounded," Mr Hudson said.
"The transaction recognises the value that exists in BlueScope Steel's offshore interests and importantly, opens the business up to attractive new product segments in the Asian market and with a high quality partner in Nippon Steel," Merlon Capital Partners portfolio manager Ben Goodwin said.
The JV transaction with Nippon Steel is expected to be final between January and March, pending approval from regulators. It will empower Nippon Steel to acquire a greater presence in the US, Indonesia, Malaysia, Thailand, Vietnam, Singapore and Brunei.
The venture with Nippon Steel will "facilitate entry into new markets not currently accessible to BlueScope Steel," the latter said in a statement to the Australian Securities Exchange.
"Our second-half underlying result is expected to be in line with guidance and our year-end net debt of $384 million is a very good outcome," chief executive Paul O'Malley said in a statement.
Nippon Steel's "investment in our business will make $540 million of net proceeds available to fund opportunities for future profitable growth from a further strengthened balance sheet," he said.