JSW Cement to absorb subsidiary Shiva Cement; board approves 5:41 swap ratio

Representational Image. File pic.

JSW Cement on Tuesday said its board approved a scheme of arrangement for the amalgamation of its subsidiary Shiva Cement with the company.

The merger will create a single unified cement platform and unlock operational, financial and management synergies, the company said in a regulatory filing.

JSW Cement currently holds a 66.23 per cent share in Shiva Cement, according to news agency PTI. The company had acquired a 37 per cent stake in Shiva Cement in January 2018 with a subsequent open offer.

The proposed scheme

As per the scheme of amalgamation, JSW Cement will issue 5 equity shares of face value Rs 10 for every 41 equity shares of face value Rs 2 held in Shiva Cement to the shareholders of Shiva Cement (other than JSW Cement).

The scheme is subject to receipt of requisite approvals from the Stock Exchanges, SEBI, the National Company Law Tribunal (NCLT), Odisha Industrial Infrastructure Development Corporation, other statutory and regulatory authorities as applicable and respective companies' shareholders and creditors as may be required under the applicable laws and / or directed by the Hon'ble NCLT," it said.

"The transaction is expected to be completed within 12-14 months, subject to timely receipt of regulatory approval," it added.

Under the Companies Act, a merger or amalgamation scheme becomes effective only after it receives approval from the NCLT. Before that the proposal requires approvals from the boards of the companies involved, shareholders, creditors and relevant regulatory authorities, wherever applicable.

The NCLT's approval is generally the final judicial step, giving the scheme legal effect and making it binding on all stakeholders.

The rationale behind the merger

JSW Cement, part of the Sajjan Jindal-led JSW Group said the merger will pool financial, managerial, technical, distribution and marketing resources to drive operational efficiency. It will also allow it optimize raw material procurement through backward integration through Shiva Cement's clinker facility, reducing dependence on external procurement.

It further said the merger will allow financial synergies with enhanced funding flexibility, lower financing costs and elimination of inter-company guarantees. The scheme will also cut administrative duplication and compliance requirements.

It said the deal will unlock value for the shareholders as future scalability and operational efficiency through improved operational synergies will enhance economic value for shareholders. For the public shareholders of Shiva Cement, they will receive direct shareholding in a larger, more liquid entity with diversified institutional investor base, it said.

"The proposed merger is a strategic step towards creating a more integrated and efficient business. It will unlock operational and financial synergies, strengthen backward integration, and simplify our corporate structure. Importantly, it will enable Shiva Cement's public shareholders to participate directly in the growth of a larger and more liquid listed entity," JSW Cement CEO Nilesh Narwekar said.

JSW Cement operates nine plants in India. It has a cement grinding capacity of 24.10 MTPA with a clinkerisation capacity of 9.74 MTPA.

On Wednesday, shares of JSW Cement were trading at Rs 113.25 on BSE, up Rs 0.65 or 0.58 per cent from the previous close.

(With inputs from PTI)