JSW Steel may merge with loss-making JSW Ispat

JSW Steel is likely to merge JSW Ispat, the loss-making subsidiary that was acquired in December 2010, with itself and an announcement is expected to be made within 15-20 days, sources said.

For the merger, share swap ratio could be somewhere between 1:65 or 1:75, they added. It means that JSW Ispat shareholders would get one share of JSW Steel for their every 65 or 75 shares held in the company.

JSW is aiming at multiple benefits through the merer, including a tax gain of about Rs 2,088 crore on which JSW Ispat would be laying claim as it has started making profits, they further said. However, a JSW Steel spokesperson declined to comment on the matter and said, “If at all there is any development, it will be notified to the stock exchanges first.”

[caption id=“attachment_435075” align=“alignleft” width=“380”]  The merger will also lead to increase in JSW’s debt by more than 6,000 crore. Reuters[/caption]

Shares of JSW Steel were trading at Rs 697 apiece on the BSE, down 1.80 percent, while JSW Ispat scrip was up 0.10 percent at Rs 9.81.

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In July, JSW Steel Chairman Sajjan Jindal had said that merger process will begin once JSW Ispat becomes profitable and had indicated that it may happen in next fiscal.

The merger may also lead to Japan’s JFE Steel, the second largest shareholder in JSW with 15 percent stake, making additional investments in the Sajjan Jindal-led firm for retaining its holding at present levels.

The merger will lead to issuance of new shares and equity dilution for existing shareholders. “So, if JFE wants to retain its 15 percent shareholding, it will have to pump in additional money. That will be a big gain for JSW as its debt levels would increase post merger,” said a source.

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JSW-promoter group, led by Sajjan Jindal, holds 38.05 percent stake in the steelmaker. The merger will also make JSW second largest domestic steel producer, with a 14.2 million tonnes per annum production capacity, after state-owned Steel Authority of India (SAIL).

The merger will also lead to increase in JSW’s debt by more than 6,000 crore. As on March 2012, JSW had a net debt of Rs 16,600 crore. In December 2010, the Sajjan Jindal-led firm had acquired 41 percent stake in debt-ridden Ispat Industries for about Rs 2,157 crore from its then promoters Pramod and Vinod Mittal.

Later, JSW renamed it as JSW Ispat Steel and refinanced its Rs 6,000 crore debt, out of a total of Rs 9,500 crore debt at the time of acquisition, to bring it out of corporate debt restructuring. As on June 30, JSW Steel had 46.75 percent stake in JSW Ispat, while the erstwhile promoters, Pramod and Vinod Mittal hold less than 20 percent stake.

JSW Ispat, which operates 3.2 million tonnes production capacity at Dolvi, near Mumbai, posted net profit of Rs 478.24 crore during the April-June quarter, its first profitable quarter in last few years. For the full financial year 2011-12, it has narrowed down its net loss considerably to Rs 263.64 crore against a net loss of Rs 1,872.29 crore in 2010-11.

The company, while announcing the results for the last quarter, had said that its net deferred tax asset, as on June 30, stands at Rs 2,087.94 crore and it is confident of claiming it in future, when it will have sufficient taxable income.

PTI