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2nd September 2004: Steel Authority of India (SAIL), has finally decided to merge its wholly owned division, the Burnpur-based Indian Iron and Steel (Iisco) with itself. Ram Vilas Paswan, Union minister for steel, chemicals & fertiliser, made the announcement on Tuesday, after a meeting with West Bengal chief minister Buddhadeb Bhattacharjee at the Writers’ Building. The Union Cabinet’s formal approval is now the only thing left between the nearly 5-7 years dream and the reality.

            Mr. Paswan said, “The government has decided to merge Iisco with SAIL.” He remarked that SAIL has earned over Rs 2,500 crore in net profits this year, and therefore funds would not be a problem for the revival of Iisco. SAIL chairman VS Jain, who accompanied Mr. Paswan during his meeting with the chief minister, said: “We have taken an in-principle decision regarding Iisco’s merger with SAIL. Now, the required procedures regarding the merger will be followed.” A SAIL spokesman said the state government has agreed to continue its support to Iisco, as was agreed by the terms of the revival package, cleared by the BIFR in June ’02, which is under execution right now. The possibility of the merger has been speculated for long. The announcement by the minister, therefore, came as a very big relief, not only to the beleaguered Iisco, but also to the West Bengal government.

            Tuesday’s announcement by Mr. Paswan may actually end Iisco’s struggle for survival, that was turning bleaker by the day ever since the company slipped into the red, a couple of decades ago. The merger decision, however, couldn’t have been better timed. It comes when Iisco, aided by a boom in the steel market, has finally begun to show signs of a turnaround. Ending a two decade-long drought, Iisco did finally manage to rake in a net profit of Rs 27.1 crore last year, on a total turnover of Rs 1,051.3 crore.

Since the clearing of Iisco’s Rs 1,089-crore revival package by BIFR, about Rs 186 crore has been earmarked for providing VRS to around 3,000 employees of Kulti Works, which was closed down in March ’03. Another Rs 207 crore was also provided to meet cash losses during the limited revival period. A further sum of Rs 354 crore will be spent on providing VRS to about 6,000 employees at the Burnpur Works, the collieries and the mines.

Former in June this year, during his first visit to the plant Mr. Paswan had announced a modernisation programme of Rs 341 crore. About Rs 230 crore was to be spent on Burnpur plant while another Rs 111 crore was set aside for modernisation of the collieries and mines. Iisco had total employee strength of 16,740 as on August 1, 2004, of which some 800 were executives, while the rest, including the workers at the Burnpur Works, collieries and iron-ore mines, belong to the non-executive grade.

2nd September 2004: It is the time of the year for the extensive merger in the public sector. Bharat Petroleum Corporation (BPCL) is now planning to merge subsidiary company Kochi Refinery (KRL) with itself. The outcome of this merger will result in savings close to Rs 200 crore on sales tax alone. Refining margins are at an all-time high and the company, which is currently losing money on marketing, is hoping to capitalise on these through the merger with KRL, oil industry sources said. By now BPCL hold a 55% stake in KRL.

            By the news of the merger, the stock of KRL on Tuesday rose by 9% on the BSE. It closed at Rs 181.8. “The merger was on hold so far, but is now being re-examined,” said Sarthak Behuria, the BPCL chairman and managing director at the post-AGM press conference. On the other hand, the company has no plans for the merger of its other subsidiary – Numaligarh Refinery – in which it owns a 63% stake. To expand refining capacity in the future, BPCL has reactivated its long-delayed, 9-mt Bina refinery project. For the sales tax concessions for the project, Negotiations are on with the Madhya Pradesh government, said Mr. Behuria. At present, the company’s refinery at Mumbai is being expanded to 12m tonnes a year, from 8.7m tonnes per year. The expansion will be completed in the last quarter of the current financial year at an estimated cost of Rs 1,831 crore.

            Commenting on the profitability of the company, Mr. Behuria said high crude oil prices have impacted marketing margins severely. Loses on account of kerosene during April to September ‘04 were Rs 720 crore, compared to Rs 720 crore during ’03-04.

1st September 2004: Since the foreign company agreed to accept a two-year bank guarantee of Rs 200 crore from Jisco to cover its claims, Balli Kloeckner GmbH (BKG) be privileged to retread its objections to the proposed merger of Jindal Iron and Steel Company (Jisco) and Jindal Vijayanagar Steel (JVSL). It is probable that the guarantee to be provided by the Punjab National Bank (PNB). The guarantee will cover BKG’s claim of Rs 133 crore and the IT department’s claim of Rs 63 crore. This will clear the primary barrier in the merger of Jisco & JVSL.

BKG had objected to the merger because of the money that Jisco owed it. The amount has, however, been disputed by the latter and is currently under arbitration in Sweden. A source said, a two-year guarantee was sought by creditors, as arbitrators Vinson & Elkins estimated it would take 18-24 months to conclude the arbitration. The bank guarantee will also cover any loss on account of foreign exchange fluctuations over the next two years.

In the meantime, Jisco in its affidavit to the Bombay high court elucidate that the networth of the merged company is positive and that the amalgamated company would be in a position to meet claims of objecting creditors in the near future. The affidavit was filed after the court-appointed chartered accountant Kalyani & Mistry (K&M) questioned the ability of merged entity to meet all liabilities, including claims of objecting creditors.

Jisco pointed out in its affidavit that its net worth of Rs 2,437.5 crore (that is value of assets after meeting all its liabilities, except claims of objecting creditors), as calculated by the court-appointed chartered accountant was sufficient to cover all liabilities.

ICICI Bank is the lead institution for the company. An official from the bank said that K&M had not considered the credit line available to the company from banks while preparing its report. He added that ICICI was comfortable in making cash available to the company if there is a contingency, adding the former was comfortable with the financial standing of the merged entity.

Officials of Jisco pointed out that if their financials were not sound, then PNB would not have agreed to give an Rs 200 Crore bank guarantee. Jisco further pointed out that it has made provisions for prepayment of loans to financial institutions of Rs 426.8 crore before 31st March 2005, as the merged entity was likely to generate sufficient cash-flows. According to the affidavit, these idle cash flows amounting to Rs 426.8 crore could also be used for payment of liabilities. Jisco further stated that there is no risk of bankruptcy. The company pointed out that according to operating results for the first quarter ended 30th June 2004, the combined cash-flows of the two companies stood at Rs 284 crore.

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