The respective boards of JSW Steel Ltd and JSW Ispat Steel Ltd have given their nod for the merger of the two companies. JSW Ispat shareholders will get one share of JSW Steel for every 72 shares held.
The company expects the merger to be complete before the end of the current financial year. “This merger will make us a 14.2-million-tonne (mt) steel capacity company and gives us a much bigger canvas to play on. Also, with this, the company can take up larger expansions in future,” said Sajjan Jindal, chairman and managing director of JSW Steel.
Jindal said the company, post the merger, will mull taking the flagship Vijayanagar steel plant to 16 mt from the current 11 mt and Dolvi plant of JSW Ispat to 7-8 mt from the present 3.3 mt.
Jindal said taking up such an expansion plan at the Dolvi unit of JSW Ispat was difficult as the balance-sheet of the company wasn’t strong enough. JSW Ispat has been making losses for the past few years, with the June quarter becoming the first in many to report a profit of Rs 478 crore.
However, even this profit was reported because of the deferred tax credit of Rs 779 crore that the company availed in the quarter. Jindal agreed that losses in JSW Ispat were an issue with the bankers and the latter were forcing JSW Steel to infuse further equity in the company. “We could do that either by a rights issue or by merging the company. We chose to merge,” Jindal said.
The merger brings a tax credit of Rs 2,090 crore to JSW Steel which the company plans to use as per its needs. Seshagiri Rao, joint managing director and group chief financial officer, JSW Steel did not comment on the timeline by which the company plans to finish off the tax benefit. The company said it will “realise significant financial benefits via accelerated utilisation of unabsorbed tax losses at JSW Ispat.”
Aanalysts have dubbed this as a “non-event” with no major benefit to JSW Steel post the merger. Rao said after the merger, the debt on JSW Steel’s books would go up to Rs 25,200 crore from the current Rs 16,600 crore as JSW Ispat’s debt would reflect on its books.
The promoters of JSW Steel held 38.05 per cent stake in JSW Steel which will come down to 35.12 per cent in the merged entity. The Mittal brothers had 19.26 per cent stake in JSW Ispat Steel which will come down to three per cent which they are likely to continue holding. Jindal said there had been no discussions with them regarding a board seat in JSW Steel for their three per cent stake.
JFE, a Japanese steelmaker, has the approval to maintain its shareholding at 15 per cent in JSW Steel will see its stake come down to 14.92 per cent after the merger. JFE has an approval to maintain its stake at 15 per cent and may look to invest further in JSW Steel to come back to those levels.
