Jan 31, 2013, 08.00 PM | Source: PTI
JSW Steel today said its shareholders have approved merger of JSW Ispat Steel with itself, paving the way for the company to become second largest steel producer in the country.
Now, a formal nod of the Bombay High Court is required to complete the merger process. Post merger, JSW Steel will have an annual production capacity of 14.3 million tonnes and become second largest domestic producer after SAIL.
According to the merger plan, shareholders of JSW Ispat will get one JSW Steel share for every 72 shares they hold. Moreover, JSW Ispat will transfer its Kalmeshwar undertaking and JSW Steel will transfer its downstream undertaking to JSW Steel Coated Products. Besides, JSW Building Systems will also be merged with JSW Steel.
Announcing the merger in September, JSW Steel chairman Sajjan Jindal had said that "this merger will give us a lot of synergy in operation and economies of scale. We can now go for brown-field expansion at Vijayanagar in Karnataka and Dolvi in Maharashtra."
Besides, it will also reduce the cost of borrowing for JSW Ispat and the merged entity is likely to get Rs 250 crore benefit from it. Moreover, the net debt level of the merged entity would be around Rs 25,200 crore with a debt to equity ratio of 1:1.15.
Post-merger, promoters of JSW Steel will hold 35.12 percent in the merged entity, while company's second largest shareholder JFE Steel holding will come down to 14.92 percent. JFE had 15 percent stake in JSW Steel till the time of merger announcement.
JSW Steel had acquired 41 percent stake in debt-ridden Ispat Industries from Pramod and Vinod Mittal, brothers of the steel czar L N Mittal, in December 2010 for about Rs 2,157 crore. Ispat Industries was subsequently named as JSW Ispat.
JSW Steel later increased its stake to 46.75 percent and remains the single-largest shareholder in JSW Ispat. The Mittal brothers will own around 3 percent stake in the merged entity. Before the merger announcement, the Mittal brothers had nearly 20 percent stake in JSW Ispat.
The trigger for the merger was JSW Ispat clocking a net profit of Rs 478.24 crore during the April-June quarter of 2012, which was its first one in last few years.
After returning to profit making, JSW Ispat would now be eligible to lay claim of deferred tax benefits of about Rs 2,088 crore, which would be a huge gain to JSW Steel.