Jindal Vijaynagar peaks on payout bungle

Investors who lapped up the Jindal Vijaynagar stock on Thursday, on news of a hefty 30 per cent dividend, got a rude shock after reading the fine print.

The dividend is on the equity capital of the entity created after the merger of Jindal Iron & Steel Company (Jisco) and Jindal Vijaynagar Steel (JVSL). Therefore, the 30 per cent dividend in the merged entity actually means an effective 1.31 per cent dividend to the existing shareholders of JVSL.

The Jindal Vijaynagar counter surged to a 52-week high of Rs 22.25 in intra-day trades, before closing at Rs 21.20, up 14.28 per cent over its previous close.

Investors flocked the counter after the company's board approved the payment of a 30 per cent dividend for the merged entity. More than 5.21 crore shares were traded on the on the BSE and 11.68 crore shares on the NSE were traded on Thursday.

Surprisingly, the Jindal Iron counter witnessed a 2.24 per cent fall in selling pressure to close at Rs 384.25, despite hitting a 52-week high of Rs 398 in intra-day trades. More than 3.41 lakh shares were traded on the BSE and 8.14 lakh shares were traded on the NSE yesterday.

Clarifying the confusion, Seshagiri Rao, director finance, Jisco, told Business Standard, "We have declared the dividend of the merged entity, after the scheme has been fully implemented. As per the scheme, every 100 shares held by a JVSL shareholder will become 4.375 shares in the merged entity.

Similarly, an existing Jisco shareholder will get one share in the merged entity for every one share held in the erstwhile Jisco and also one share in the investment company JSWH, for every four shares held in erstwhile Jisco.

Therefore, the 30 per cent dividend in the merged entity would mean 1.31 per cent dividend effectively to the existing shareholders of JVSL."

According to the scheme of amalgamation, for every 100 shares held in Jindal Vijaynagar Steel (JVSL), an investor would get 4.375 shares of the merged entity, effectively translating to a 1.31 per cent dividend for the existing JVSL share.

An investor of the erstwhile Jindal Iron & Steel Company, would get 100 shares of the merged entity, for every 100 shares held in the erstwhile Jisco, reflecting into a 30 per cent dividend for the existing shares.

This dividend payout would be made to all 7.2 lakh of JVSL shareholders, 32,000 shareholders of the erstwhile JISCO and lenders who will be allotted equity. The company has also declared a 10 per cent preference dividend to its preference shareholders.

As part of the scheme of arrangement, an investment company Jindal South West Holdings (JSWH) is also being carved out of the erstwhile Jisco.

JSWH will hold all the investments of Jisco. According to the share swap ratio, for every four shares of the merged company, an investor will get one share of JSWH.

The company has also fixed February 28 as the record date for the dividend payout. Trading in the two existing companies would be temporarily stopped from the record date or the date as may be fixed by the stock exchanges. "Trading in the merged entity is expected to resume by March 31, 2005," Rao said.