Steel production is energy-intensive. Energy constitutes a significant portion – between 20% and 40% – of steel’s production costs, according to the World Steel Association. So as a heavy user of energy, a lot of measures are being instituted to reduce the carbon emission intensity and make the steel industry more sustainable and environmentally-friendly.
One major steel producer embracing sustainability is JSW Steel, an Indian multinational steel-making company that entered the industry after India liberalized and opened steel-making to the private sector. Sustainability was a hallmark of the JSW Steel operation from its beginning.
JSW Steel is the flagship business of the US$13 billion highly-diversified JSW Group. As one of India’s leading business houses, it has other interests in sectors like energy, infrastructure, cement, paints, sports and venture capital. It has grown from a single manufacturing unit in the early 1980s to become India’s leading integrated steel company with a steel-making capacity of 28 million tonnes per annum (MTPA) in India and the US, including capacities under joint control and a new capacity to be commissioned this year at its Dolvi plant in the state of Maharashtra.
Its roadmap for the next phase of growth includes a target to achieve 37.5 MTPA steel capacity in fiscal year 2025. The company’s manufacturing unit in Vijayanagar, Karnataka, is the largest single location steel producing facility in India, with a capacity of 12 MTPA.
JSW Steel has always been at the forefront of research and innovation. It has a strategic collaboration with global leader JFE Steel of Japan, enabling the company to access new and state-of-the-art technologies to produce and offer high-value special steel products to its customers.
JSW Steel used to be a ‘converter’ – buying hot rolled coils, converting them into galvanized and colour-coated coils, and then selling them in the market. The company brought in a technology called Corex for the first time in India, which was then being used only in Korea and South Africa. “It was an ideal technology for India as it was environmentally-friendly,” the company’s joint managing director and group CFO Seshagiri Rao tells The Asset. “It does not use coking coal, but uses oxygen instead. The technology also produces a lot of gas that can be used for generation of power to feed the steel plants.”
Indeed, JSW Steel relies on technology in embedding sustainability at the core of its operations and that is how it differentiates itself from the competition. “When everybody goes for other technologies to set up integrated steel plants, JSW Steel went completely on a different track,” Rao points out.
In addition, the company has initiated the million-tree plantation project in the nearby degraded forest areas at Dolvi and Karav, which Rao says makes a difference in temperature in the area.
JSW Steel, according to Rao, was able to reduce its carbon emissions by 27% in 2020 over 2005 through a series of initiatives to reduce its reliance on the fossil fuel-based power and use as much as it can of the heat and gases that are generated from the production process itself. The company will replace the fossil fuel-based power with renewable energy by 2030, which should also contribute to the reduction of its carbon emissions.
Demonstrating JSW Steel’s commitment to sustainability was its first-ever issuance in September of a sustainability-linked bond (SLB), amounting to US$1 billion – a landmark transaction in the steel sector globally.
The dual-tranche issuance was equally split at US$500 million each, with tenors of five and a half years and 10 and a half years. The five-and-a-half-year tranche was a conventional bond priced at 99.999% with a similar coupon and re-offer yield of 3.95%. This was 42.5bp tighter than the initial price guidance in the 4.375% area.
The 10-and-a-half-year offering was issued as a SLB and was priced at 99.998% with a similar coupon and re-offer yield of 5.05%. It achieved a bigger price compression of 45bp from its initial price guidance in the 5.50% area. Under the SLB terms, the company is committed to achieving an ambitious target of about 1.95 tonnes of carbon dioxide (CO2) per tonne of crude steel produced by March 2030. This represented a 23% reduction compared with the 2020 levels.
This target has been certified by DNV, an independent international agency that has opined that JSW Steel’s targets are ambitious and beyond what is considered business as usual.
Based on the SLB terms, if the company is not able to meet the targets by March 2030, the bond pricing will be stepped up by 37.5bp for the residual life of the paper. The SLB structure enabled the company to attract environmental, social and governance (ESG)-focused funds. For Rao, a SLB also helps issuer secure a longer tenor, although there is not much difference in terms of pricing.
The SLB is regarded as a win-win proposition for both issuers and investors. It benefits the investors by giving them an avenue to invest in socially-responsible companies, while providing the right incentive structure to companies to improve their ESG performance and diversify their resource-based long-term financing.
“Sustainability is at the heart of the JSW Steel philosophy, and we have always been at the forefront of incorporating sustainability in our core operations to improve climate impact performance,” Rao says. “The target set by JSW Steel is significantly steeper than that committed as per India’s Nationality Determined Contributions and is aligned with the Sustainable Development Scenario pathway by way of targeting a 42% reduction of CO2 emissions from the base year of 2005.”
The offering garnered a final combined order book of US$4.7 billion from 245 accounts, representing a robust oversubscription of about 4.7 times. It attracted the participation from high-quality real-money accounts with asset and fund managers anchoring 80% of the five-and-a-half-year tranche and 93% of the 10-and-a-half-year SLB.
