1:16 swap for Jisco, JVSL merger

The Jindal group announced the merger of Jindal Iron & Steel Company (Jisco) and Jindal Vijaynagar Steel, to create India's second largest steel company, with an asset base of over Rs 7,000 crore, annual sales of over Rs 5,500 crore and an annualised earning before interest, depreciation and tax (EBIDTA) of over Rs 1,200 crore.

This will make Jisco India's twelfth largest company in terms of assets, in the BS 1,000 rankings.

The merger ratio has been put at 1:16, which means for each share of Jisco, shareholders will get 16 shares of Jindal Vijaynagar. The merged entity will be called Jisco.

The board also approved the demerger of Jisco's Rs 626 crore investment portfolio into a separate listed investment company, Jindal South West Holding. Jisco shareholders will get one share in the new company for every four shares they hold.

Jisco's stock price climbed 3.09 per cent to close at Rs 193.20, off its new 52-week high of Rs 203.90 recorded in intra-day trades. More than 1.76 million shares changed hands on the Bombay Stock Exchange (BSE) through 10,321 trades. On the National Stock Exchange (NSE), 2.99 million shares were traded through 23,638 trades.

However, Jindal Vijaynagar's stock price plunged 9.82 per cent to close at 13.32, off the day's high of Rs 15.25. More than 4.66 million shares were traded through 7,520 trades on the BSE, while 16 million shares changed hands on the NSE through 21,312 trades.

Sajjan Jindal, Jisco vice-chairman and managing director, said, "The merger will lead to lower operational and administrative costs, significant tax benefits and a stronger balance sheet."

Seshagiri Rao, director (finance), Jisco, said: "Because of the accumulated losses of Jindal Vijaynagar, Jisco can avail of tax benefits of Rs 2,500 crore over the next few years. Over the next 3-4 years, Jisco's tax outgo could be nil."

"In terms of EBIDTA margins, we will be India's best-performing steel company. Integrated steel companies also enjoy a higher price-earnings multiple, and hence the merger will lead to better returns to shareholders," Jindal added.

The company is expecting to achieve a combined turnover of around Rs 6,000 crore in the current financial year, while inter-company sales will be around Rs 1,400 crore annually.

The merged entity will have an equity base of Rs 140.67 crore after the reduction in Jindal Vijaynagar's capital as per the recommendations of the corporate debt restructuring scheme.

While the promoters will own about 45 per cent in the company, around 24 per cent will be held by financial institutions and lenders, with the remaining shares held by the public.