JSW Steel secures MUFG funding for Australian coking coal mining company acquisition: Report

This move is significant as major global banks have reduced their exposure to fossil fuel assets due to mounting climate change concerns, making it increasingly challenging for companies to secure funding for such acquisitions.

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

The investment will be made through its wholly owned subsidiary, JSW Steel (Netherlands) B.V., by purchasing non-voting Class B shares in M Res NSW.

As part of the deal, JSW Steel also agreed to invest an additional $50 million by 2030 to meet the company's deferred payment obligations, the report said.

The sources further revealed that JSW Steel has obtained the full acquisition financing from MUFG at an interest rate close to 12% per annum for a three-year term, after which the company plans to refinance the loan with 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.

The funding for the acquisition of the coking coal asset comes at a time when major global banks are reducing or eliminating their exposure to fossil fuel assets in an effort to achieve their ambitious net-zero emission goals, according to the report.

In contrast, two Japanese banks, MUFG and Mizuho, were among the top five fossil fuel financiers worldwide in 2023, the report said, citing the Banking on Climate Chaos 2024 report.

This underscores the increasing role of Japanese lenders in fossil fuel financing as Western banks retreat from the sector.

Last year, MUFG was the third-largest financier of companies engaged in fossil fuel expansion, providing $15.4 billion in funding, while Mizuho ranked second, with $18.8 billion in financing, the report added.

The Australian company in which JSW Steel is acquiring a 66% stake owns a 30% share in Golden M NSW Pty Ltd (Golden M), said the report.

Golden M is set to acquire Illawarra Coal Holdings Pty Ltd (Illawarra Metallurgical Coal), which operates the Appin and Dendrobium coking coal mines in New South Wales, Australia, according to the report.

These mines contain approximately 99 million tonnes of high-quality coking coal, a crucial component in steel production.

"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 rely on coking coal imports from Australia, Russia, and the United States, making them vulnerable to price surges and operational difficulties if there are disruptions in the supply chain.

In May, JSW Steel announced the acquisition of the Mozambique-based mining company Minas de Revuboe to tap into its 800 million tonnes of premium hard coking coal reserves.