JSW Steel, JSW Ispat boards to meet on Sep 1 for merger

JSW Steel had acquired 41% stake in debt-ridden Ispat Industries in 2010 and subsequently renamed it as JSW Ispat

The boards of JSW Steel and its loss-making subsidiary JSW Ispat will meet on Saturday to decide merger of the two firms.

JSW Steel had acquired 41% stake in debt-ridden Ispat Industries in December 2010, for about Rs 2,157 crore and subsequently renamed it as JSW Ispat.

In a filing to the BSE today, JSW Steel said its board will meet "on September 1, 2012, inter alia, to consider a proposal for restructuring and reorganisation of certain business and undertakings of the group including that of JSW Ispat Steel Ltd."

In a separate filing to the BSE, JSW Ispat said its board will also meet on the same day "to consider proposals for amalgamation of the businesses and undertakings of the company".

As on June 30, JSW Steel had 46.75% stake in JSW Ispat, while the erstwhile promoters, Pramod and Vinod Mittal hold less than 20% stake.

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

Through the merger, JSW Steel is aiming at multiple benefits, 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 added.

The April-June quarter was first profitable quarter for JSW Ispat in last few years as it had reported a net profit of Rs 478.24 crore, mainly due to accounting of Rs 779.17 crore as a deferred tax asset on its balance sheet.

The company, which operates 3.2 million tonnes production capacity at Dolvi, near Mumbai, had also narrowed down its net loss considerably to Rs 263.64 crore in the last fiscal against a net loss of Rs 1,872.29 crore in 2010-11.

Shares of JSW Steel closed today at Rs 694.20 apiece on the BSE, up 0.63%, while JSW Ispat scrip was up 0.32% at Rs 9.81.

The merger may also lead to Japan's JFE Steel, the second largest shareholder in JSW with 15% 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 and hence to retain 15% holding in JSW, JFE will need to make additional investment post merger, sources said.

JSW-promoter group, led by Sajjan Jindal, holds 38.05% stake in the steelmaker as on June 30.

The merger will also make JSW second-largest domestic steel producer after state-owned SAIL and increase its debt by more than 6,000 crore. As on March 2012, JSW had a net debt of Rs 16,600 crore.