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Mumbai , Nov. 13

JINDAL Iron and Steel Company Ltd (Jisco) and Jindal Vijaynagar Steel Ltd (JVSL) today announced a multi-layered amalgamation and restructuring deal.

Its three parts were - demerger of the investment business of Jisco into Jindal South West Holdings Ltd; reorganisation of the share capital of JVSL; and the amalgamation of steel business of Jisco with JVSL.

With regard to the amalgamation of Jisco's steel business with JVSL, the share exchange ratio has been set at 16 shares of JVSL for every Jisco share held. However, the scheme of arrangement involves a reduction of capital at JVSL from Rs 1,291 crore to Rs 96.56 crore. Once this is done, the exchange ratio will become one share for every one held in Jisco.

The reduction of JVSL's capital is being done through a series of steps. The corporate debt-restructuring package (CDR) provides for converting four equity shares of every ten shares held, into four 0.01 per cent cumulative redeemable preference shares (CRPS) of Rs 10 each. The CRPS will be converted into equity shares of Rs 10 each in the ratio of one equity share for every four CRPS held by the shareholders resulting in allotment of 12.91 crore shares.

Besides, JVSL will allot one warrant for every seven equity shares held by its shareholders. The holder of the warrant will have a right to apply and be allotted one equity share of JVSL for each warrant held by the shareholder. The warrant holder will be entitled to apply for the equity share on or before April 1, 2006.

As per the CDR, Rs 456.88 crore of debt will be converted into 45.68 crore shares of Rs 10 each of JVSL.

The new merged entity will be named as Jindal Iron and Steel Company (Jisco).

Explaining the rationale for this amalgamation, Mr Sheshagiri Rao M.V.S, Director (Finance), JVSL, said the move was aimed at setting up an integrated steel business straddling the range of steel products from iron ore to galvanised steel. The merger will also help in enhancing the entity's financial strength, allow efficient use of tax shields currently available to JVSL to the tune of Rs 2,500 crore. Besides, volatility in steel prices can be managed more effectively thus lowering the risk for the company and also improve potential for organic and inorganic growth.

However, the most important reason for the merger is to ready itself for the next downturn in prices.

The merged entity will have an outstanding debt of Rs 4,750 crore as on March 2004. The company plans to bring down debt by Rs 500 crore this year and has a three-year target to bring its debt equity ratio of 5:1 to lower than 2.

The merger will result in an immediate savings of Rs 150 crore, Mr Rao said. The company is also expected to save future sales tax, which JVSL would have had to pay as 45 per cent of its production is sold to Jisco.

In the new entity, promoters will hold 45 per cent stake, lenders 24 per cent and the rest will be held by the public. The board will be headed by Mr O.P. Jindal as Chairman, Mr Sajjan Jindal as Vice-Chairman and Managing Director and the two CEOs - Mr Raman Madhok and Dr B.N. Singh will head the two SBUs.

The appointed date for the scheme is April 1, 2003.

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