Jindals reverse merger plan

The lower rate of stamp duty in Maharashtra has forced the Jindals to alter their plan for a reverse merger of Jindal Iron and Steel Company into Jindal Vijaynagar Steel.

Jisco, which is located at Vasind, Maharashtra, is set to emerge as a consolidated $1 billion entity after the merger.

The boards of both Jisco and Jindal Vijaynagar will meet on Thursday to ratify the consolidation move.

"The proposals for the consolidation of the steel business will be placed before the board for approval on Thursday," a Jindal group executive said.

A source close to the development said, "While Jisco is a tax-paying company, Jindal Vijaynagar has a huge debt burden and accumulated losses over the last few years. Therefore, merging Jindal Vijaynagar into Jisco is financially more viable for the group as the tax implications will be favourable for the latter. Also, since the asset base of Jindal Vijaynagar is larger, the stamp duty is higher for it."

The boards will also consider hiving off Jisco's investments into a separate company, and re-organising the capital of Jindal Vijaynagar.

Jindal Vijaynagar has an asset base of around Rs 7,000 crore (Rs 70 billion), with a debt burden of around Rs 6,000 crore (Rs 60 billion).

The share exchange ratio recommended by the valuers was pegged between 1:13 and 1:15, industry sources said.

However, company officials declined to comment on the share swap figure.

"The new company will operate through two special units, with one segment dedicated to hot rolled coils and the other to value-added products such as cold rolled coils and galvanised products," the sources said.

The objective of the merger was to form a single company, straddling the value chain from iron ore mining to value-added galvanised products.