Essar Shipping, Sisco Approve 3:1 Swap Ratio

The boards of Essar Shipping and South India Shipping Corporation, (Sisco), boards have recommended a share swap ratio of 3:1 for the merger of Sisco with Essar.

After a meeting in Mumbai yesterday, the boards announced that shareholders of Sisco will get three shares of Essar for every one they hold. The ratio is based on the recommendations made by a panel of valuers consisting of Mumbai-based N M Raiji & Co and Chennai-based Fraser & Ross. Yesteday at the BSE, Essar shares closed at Rs 14.5, while Sisco's closing was Rs 38.25. Anticipating a good ratio, Sisco's price has been moving up during the last few days. It has moved up from the Rs 27 level on July 3 to Rs 38.25. Earlier last month, the boards recommended the merger of Sisco with Essar with retrospective effect from April 1, 1996 and appointed the valuers. The share-swap ratio has been arrived at on the basis of net asset value, profit earning capacity and the 12 months share prices of the two companies, according to a release from Essar.

The merger will be in the best interests of shareholders of both companies, improve the operational efficiency, achieve better economies of scale and service the shareholders better, according to Shashi Ruia, chairman, Essar Group. The merger will be subject to the approval of FIs, lenders, shareholders and creditors of both the companies. The Bangalore and Chennai High Courts too will have to sanction the merger. J M Financial & Investment Consultancy Servi-ces, the advisors to the merger will co-ordinate the merger-related activities.

The paid up capital of the merged company will increase to Rs 197 crore from Rs 149 crore. The merger will create one of the largest companies in the private sector with a networth of about Rs 1000 crore and a debt equity ratio less than 1:1.

The merged entity will also have the necessary financial leverage to access long term borrowings at competitive rates.

The combined fleet size of the merged entity will be 1.49 million dwt and will comprise of a 33 ships. This will consist of six modern double hull double bottom suexmax crude oil tankers, one ore bulk and oil carrier, four product carriers, four offshore vessels, seven bulk carriers and 11 mini bulk carriers. The average age of the fleet will be around eight years compared to 14 for Indian tonnage and 17 for world tonnage.