JSW to merge JSW Ispat, announcement likely in 2-3 weeks

JSW Steel is likely to merge JSW Ispat with itself and an announcement is likely in 2-3 weeks.

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.

Through the merger, JSW is aiming at multiple benefits, including that of availing tax benefit of about Rs 2,088 crore on which JSW Ispat would be laying claim, as it has started making profits, sources said.

However, a JSW Steel spokesperson declined to comment on the matter and said, "If at all there is any development, it will be notified to the stock exchanges first."

In July, JSW Steel chairman Sajjan Jindal had said that merger process will begin once JSW Ispat becomes profitable and had indicated that it may happen in next fiscal.

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.

Explaining it further, a source said that the JSW-JSW Ispat merger will lead to issuance of new shares and equity dilution for existing shareholders.

"So, if JFE wants to retain its 15% shareholding, it will have to pump in additional money. That will be a big gain for JSW as its debt levels would increase post merger," the source added.

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

The merger will also make JSW second largest domestic steel producer, with a 14.2 million tonnes per annum production capacity, after state-owned Steel Authority of India (SAIL).

The merger will also lead to increase in JSW's debt by more than 6,000 crore. As on March, 2012, JSW had a net debt of Rs 16,600 crore.

In December, 2010, the Sajjan Jindal-led firm had acquired 41% stake in debt-ridden Ispat Industries for about Rs 2,157 crore from its then promoters Pramod and Vinod Mittal.

Later, JSW renamed it as JSW Ispat Steel and refinanced its Rs 6,000 crore debt, out of a total of Rs 9,500 crore debt at the time of acquisition, to bring it out of corporate debt restructuring.

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

JSW Ispat, which runs a 3.2 million tonnes production capacity at Dolvi, near Mumbai, posted a net profit of Rs 478.24 crore during the April-June quarter, its first profitable quarter in last few years.

For the full year 2011-12, it has narrowed down its net loss considerably to Rs 263.64 crore against a net loss of Rs 1,872.29 crore in 2010-11.

The company, while announcing the results for the last quarter, had said that its net deferred tax asset, as on June 30, stands at Rs 2,087.94 crore and it is confident of claiming it in future, when it will have sufficient taxable income.

Shares of JSW Steel fell by 1.55% today to close at Rs 709.75 apiece on the BSE, while JSW Ispat closed at Rs 9.80 apiece, down 1.90% from the previous close.