JFE Holdings, the Japanese steelmaker, plans to invest about $1bn in India’s JSW Steel for a minority stake, according to two people close to the matter.
The deal is expected to be announced on July 27 when JSW, which has a market value of $4.8bn, reports first-quarter results.
An investment by JFE, the world’s sixth-largest steel producer, is the latest in a string of Japanese companies investing in fast-growing emerging markets to offset anaemic growth at home and an expected slowdown in Europe.
Last week, the Japanese carmakers Toyota and Nissan announced a combined $1.2bn of investments to bolster their presence in Latin America. Earlier this month, Sumitomo, the large trading house, signed a $1.9bn deal in Brazil for a stake in an iron ore mining venture.
The overall value of merger and acquisitions in emerging markets by Japanese companies so far this year has risen to $8.58bn, exceeding 2009’s total of $7.9bn, according to Dealogic.
JFE and JSW had been discussing plans to deepen ties since November, when they agreed to cooperate on boosting steel production to meet India’s voracious demand for the metal, said a person close to the matter.
Japanese carmakers such as Toyota and Nissan have a large manufacturing presence in India, the second-fastest growing auto market after China, and JFE aims to target their increasing demand for steel there.
For JSW, analysts in Mumbai said that JFE’s investment would help the highly indebted Indian steelmaker ease its debt exposure.
It would enable the steelmaker “to create more high-value products that JSW had in the pipeline but couldn’t develop due to its debt constraints,” said Sanjay Jain, a steel analyst at Motial Oswal.
India’s steel market is growing at about 10 per cent annually and per capita steel consumption is about 40kg a year compared with the global average of 150kg a year.
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