Melting pot

Mumbai, Aug. 29: JSW Ispat Ltd is likely to merge with JSW Steel Ltd, and an announcement can be expected over the next few weeks.

JSW Steel had acquired JSW Ispat Ltd (formerly Ispat Industries) in December 2010. The steel giant had earlier said a merger would be done once JSW Ispat turned profitable.

The buzz is that an announcement is likely to be made in the next two-three weeks, and a swap ratio of 1:75 can be proposed for the amalgamation, meaning JSW Ispat shareholders will get 1 share of JSW Steel for every 75 shares in their company.

A spokesperson from JSW Steel, however, declined to comment, saying the company will inform the stock exchanges if there is any development.

JSW Steel chairman Sajjan Jindal had told newspersons after the company’s annual general meeting last month that the merger process would begin once JSW Ispat became profitable and indicated that it might happen in the next fiscal.

Jindal had said that once the integration of facilities were done by the end of 2012-13, JSW Ispat would turn around.

However, JSW Ispat had swung to profit in the first quarter of this fiscal, reporting a net profit of Rs 478 crore compared with a loss of Rs 1,135 crore in the corresponding period last year. The profit was largely attributed to a deferred tax asset.

The company operates a 3.2-million-tonne plant at Dolvi, near Mumbai.

For the full financial year 2011-12, it has narrowed down its net loss considerably to Rs 263.64 crore against a net loss of Rs 1,872.29 crore in 2010-11.

It is felt that if there is a merger, Japan’s JFE Steel, the second-largest shareholder in JSW with a 15 per cent stake, may make additional investments in the Sajjan Jindal firm to retain its holding at the present levels. This is because the amalgamation will lead to the issuance of new shares and equity dilution for existing shareholders of JSW Steel.

The merger will make JSW the second-largest domestic steel producer, with a 14.2-million-tonne capacity, after state-owned Steel Authority of India Ltd.

The merger will also increase JSW’s debt by more than Rs 6,000 crore. As on March 2012, JSW had a net debt of Rs 16,600 crore.

In December 2010, the Sajjan Jindal firm had acquired a 41 per cent stake in debt-ridden Ispat Industries for about Rs 2,157 crore from its promoters Pramod and Vinod Mittal.