JSW Steel, JSW Ispat merger likely in 15-20 days

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

Share swap ratio for the merger is expected to be between 1:65 or 1:75, sources told PTI. This means that JSW Ispat shareholders would get one share of JSW Steel for every 65 or 75 shares they 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, the sources added.

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."

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

The merger may also lead to Japan's JFE Steel, the second largest shareholder in JSW with 15 per cent 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 per cent 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.

JSW-promoter group, led by Sajjan Jindal, holds 38.05 per cent 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 per cent 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 per cent stake in JSW Ispat, while the erstwhile promoters, Pramod and Vinod Mittal hold less than 20 per cent stake.

Shares of JSW Steel were trading at Rs 697 apiece on the Bombay Stock Exchange, down 1.80 per cent, while JSW Ispat scrip was up 0.10 per cent at Rs 9.81.

With PTI inputs