Mumbai, Sept. 1: The boards of JSW Steel and JSW Ispat today approved a swap ratio of 1:72 for the merger of the two companies. The merger will create India’s second-largest steel company with a capacity of over 14 million tonnes.

According to the merger proposal, shareholders of JSW Ispat will receive one share of JSW Steel for every 72 shares held in their company. The merger ratio is largely in line with market expectations, which was in the range of 1:65 to 1:75.

JSW Steel will issue 1.86 crore new shares, increasing its outstanding shares to 24.17 crore and its equity capital to Rs 241.72 crore.

After the merger, the promoters’ stake in JSW Steel will come down to 35.12 per cent from 35.91 per cent. Japanese firm JFE Steel’s holding will decrease to 14.92 per cent from 15 per cent, while the remaining 49.96 per cent will be held by the public.

JSW Steel expects the merger process to be completed by the end of this fiscal.

Sajjan Jindal, chairman and managing director of JSW Steel, said while JFE had the option of increasing its stake back to 15 per cent by bringing in more cash, this had not yet been discussed with the Japanese steel major.

According to Jindal, one of the key reasons for the merger was the rising carry forward losses of JSW Ispat and there was pressure from bankers to bring in more equity either through a rights issue or a merger.

Jindal, however, added that the amalgamation would bring various benefits to the table and be a win-win deal for both the companies. Jindal further clarified that obtaining the tax benefits (since JSW Ispat is loss-making) did not drive the merger.

While the merger would ensure large economies of scale and lower expenses, the JSW Steel chief said shareholders of JSW Ispat can now look forward to dividends from the merged entity.

Seshagiri Rao, joint managing director and group chief financial officer of JSW Steel, said the merger would lead to lower administrative overheads and processing costs. Rao added that on account of the strong balance sheet enjoyed by the merged entity, it could look forward to some reduction in interest rates or cost of finance.

The merger will lead to JSW Steel’s net debt rising to over Rs 25,200 crore. Rao said the plan was to keep the debt-equity ratio at a maximum level of 1.5:1