Mumbai, Nov. 13: The boards of Jindal Iron & Steel Company (Jisco) and Jindal Vijaynagar Steel (JVSL) approved a complex merger plan today.

The ratio for the merger is 16 shares of Rs 10 each of JVSL for one share of Rs 10 of Jisco. Since the scheme envisages reduction of capital of JVSL, the exchange ratio would be adjusted to one share each of JVSL for one share held by shareholders of Jisco, JVSL managing director Sajjan Jindal said.

The merged entity will be called Jindal Iron & Steel Company Ltd.

Explaining the rationale for the amalgamation, Jindal said it would provide the potential for pursuing organic and inorganic growth and also lead to efficient utilisation of tax shield.

The outstanding debt of the merged entity was Rs 4,750 crore, he said, adding that the chairman would be . P. Jindal and they would also form two strategic business units.

Post merger, the stake of promoters and lenders would be 45 per cent and 24 per cent, respectively, while the remaining would be with the public.

Before the merger, Jindal Iron & Steel will demerge its investment division called Jindal South West Holdings Ltd. Jisco has informed the stock exchanges that shareholders will be issued shares in the ratio of one share of Jindal South West for every four shares held by them in Jisco.

However, no liabilities would be transferred along with the investment division.

Jindal South West will be listed on the Bombay Stock Exchange, National Stock Exchange and Delhi Stock Exchange.

JVSL said as contemplated in the corporate debt restructuring package approved by lenders, the scheme provides for the conversion of four shares out of every 10 shares held by shareholders of JVSL into four 0.01 per cent cumulative redeemable preference shares of Rs 10 each. Additionally, a warrant holder will have a right to apply and be allotted one share of JVSL for each warrant held.

The warrant holder will be entitled to apply for the share on or before April 1, 2006, as may be decided by the board and will be required to pay Rs 10 per equity share (at par).

As contemplated in the corporate debt restructuring package, Rs 456.88 crore of debt should be converted into 45.68 crore shares of Rs 10 each of JVSL. These shares would not be liable to conversion.

After giving effect to the aforesaid re-organisation of JVSL capital, the paid-up value of the capital will be reduced by Rs 9.375 per share. Thereafter, an equity share would be consolidated into a fully paid-up share of Rs 10.

After the reduction, the warrant entitlement will also have to be adjusted proportionately and therefore, effectively JVSL shall allot one warrant in respect of every 112 equity shares held by its shareholders. A warrant holder will be entitled to apply for the equity shares on or before April 1, 2006, and be required to pay Rs 160 per share. If all warrants were exercised, 1.15 crore equity shares would be issued for a subscription of Rs 184.42 crore.