Jindal Stainless to demerge business into three verticals via slump sale route

Analysts say the de-merger plan might open the door for fresh cash inflow

In a bid to reduce its mounting debt and to ensure better management of its business verticals, Jindal Stainless Ltd - India’s largest stainless steel producing company - said on Monday that it would de-merge its ferro-alloys, coke oven and stainless steel businesses into three different entities via the slump sale route.

According to the de-merger plan, shareholders of Jindal Stainless Ltd will be issued shares by the resulting de-merged company, Jindal Stainless (Hisar),   under the share entitlement ratio of 1:1, the company said in a BSE notification.

The company’s stainless steel business has been hived off to Jindal Stainless (Hisar) for a lump sum of Rs 2,809 crore. Under this, the parent company will part with its stainless steel manufacturing unit at Hisar in Haryana. Jindal United Steel will get the company’s hot strip plant in Odisha for a lump sum of Rs 2,412 crore, while the coke oven plant will go to Jindal Coke for Rs 492 crore.

Analysts said the de-merger would only distribute the hefty debt of Rs 11,600 crore as on March 31, 2014 to the three de-merged entities, which does not really resolve the company’s issues. However, the de-merger opens the door for the company to sell-off some of its assets - those that are relatively stable such as coke oven and generate fresh cash, which could help reduce debt.

Jindal Stainless, which is among the top 10 stainless steel producers in the world, has been recording losses for the past two years and has also witnessed negative margins despite rising revenue stream, mainly because of higher expenditure and increasing finance costs.

High cost of power and difficulty in sourcing raw material for its ferro-alloys unit has been making it difficult for the firm to run the plant, while increased imports of cheaper stainless steel from China has put the company’s stainless steel unit under lower capacity utilisation.

Shares of Jindal Stainless ended 5.71 per cent up at Rs 38.90 on the BSE. The company’s debt-to-equity ratio stood at 13.25 as on March 31.