JSW Steel, Ispat boards to discuss merger

JSW Steel has decided to go ahead with the merger of JSW Ispat Steel with itself. The two companies would discuss the proposition at their respective board meetings tomorrow. JSW Steel did not respond to queries.

However, it notified stock exchanges about a board meeting on September 1 to “consider a proposal for the restructuring and reorganisation of certain business and undertakings of the group, including that of JSW Ispat Steel.” JSW Ispat said at a board meeting on September 1, it would consider proposals for amalgamation of the businesses and undertakings of the company.

Recently, Sajjan Jindal, chairman and managing director of JSW Steel, had said the merger would be considered once JSW Ispat turned profitable. For the quarter ended June, JSW Ispat posted a net profit of Rs 478.24 crore, recording a profit after many years.

Though the merger ratio is undisclosed, it has been reported shareholders could get one JSW Steel share for every 70 JSW Ispat shares. This, however, couldn’t be confirmed with the company. Analysts , do not seem excited about the deal.

Bijal Shah and Jaykumar Doshi of IIFL Institutional Equities dubbed it a “non-event”. They said the merger would increase JSW Steel’s debt by Rs 6,600 crore to Rs 23,200 crore, as JSW Ispat’s debt would also come under the parent’s books. Nomura, too, said the merger wouldn’t be beneficial for JSW Steel, as its net debt would rise substantially. JSW Ispat’s low profitability would also be a concern, it added.

IIFL and Nomura, however, agreed JSW Ispat’s deferred tax asset of about Rs 2,090 crore would help JSW Steel boost profits.

An analyst said the merger would result in JFE’s stake in JSW Steel declining to below 15 per cent. JFE has repeatedly said it would maintain a stake of 15 per cent in JSW Steel. As the merger would lead to a decline in the Japanese steel major’s stake, it would have to invest more to raise its stake to 15 per cent. Through his promoter group holdings, Sajjan Jindal has a stake of 38.05 per cent in JSW Steel. The company, which holds about 50 per cent stake in JSW Ispat, would become a 14.2-million-tonne steelmaking company after the merger.

In 2010, JSW Steel had acquired 41 per cent stake in JSW Ispat (then Ispat Industries) for Rs 2,157 crore. Through an open offer, it raised its stake to about 49 per cent. Of the total debt of Rs 9,500 crore on Ispat’s books, JSW Steel refinanced Rs 6,000-crore debt.