JSW Steel has decided to merge its loss-making subsidiary JSW Ispat with itself to achieve better operational synergy and bring down cost.
The shareholders of JSW Ispat Steel will get one share of JSW Steel for every 72 shares held.
JSW Steel will issue 1.86 crore new equity shares, thereby increasing its outstanding shares to 24.17 crore and equity capital to Rs 242 crore from Rs 223 crore.
JSW Steel will also issue 48.54 crore new 0.01 per cent non-convertible cumulative redeemable preference shares to the preference shareholders of JSW Ispat increasing its preference share capital to Rs 764 crore.
Promoters holding in the merged entity will come down to 35.12 per cent from 38.5 per cent and Japanese steel company JFE Steel International holding will fall to 14.92 per cent from 15.17 per cent. The public shareholding will be at 49.96 per cent.
In December 2010, the Sajjan Jindal-led firm had acquired 41 per cent stake in debt-ridden Ispat Industries for about Rs 2,157 crore from its then promoters Pramod and Vinod Mittal, and subsequently, renamed it as JSW Ispat Steel.
The holding of Pramod and Vinod Mittal will now come down to three per cent in the merged entity.
Overall, there will be a dilution of eight per cent in the shareholding by JSW Steel. The appointed date of the scheme will be July 1, and the merger is expected to be completed by end of this fiscal.
Sajjan Jindal, Chairman, JSW Steel, said the steel production capacity of the combined entity would be 14.3 million tonnes and would be further enhanced to 40 mt by 2020.
“Given the difficulty in getting clearance and acquiring land for setting up new plants, we thought it is easier to go in for expansion at our existing units and achieve our target even faster,” he said in a press conference on Saturday.
The lenders of JSW Ispat had also asked the promoters to bring more equity to safe guard their interest.
Seshagiri Rao, Joint Managing Director, said the company intends to achieve a saving of Rs 300-350 crore by rationalising administration and salary cost, refinancing existing debt and negotiating better price for raw material.
JSW Ispat has a tax benefit of Rs 288 crore which will now accrue on the new combined entity.
The merger will bring down interest cost of JSW Ispat by Rs 250 crore, as being a loss-making entity JSW Ispat is paying 3.66 per cent more interest on loans, he said.
The net debt of the merged entity will be Rs 25,200 crore with a debt to equity ratio of 1:1.15.