Mumbai: Sajjan Jindal, vice-chairman of the JSW Group, may merge two of his unlisted companies—JSW Cement Ltd and JSW Aluminium Ltd—into his publicly traded holding company Jindal South West Holdings Ltd, or JSW Holdings.

“A possibility exists and right now they are independent companies," he told Mint last week in a phone conversation in Mumbai, but added that a final decision has not yet been taken.

Leverage game: JSW Group vice-chairman Sajjan Jindal. JSW Cement and JSW Aluminium, both unlisted, are wholly owned by Jindal. Abhijit Bhatlekar/Mint

“We need to raise money to fund our aluminium business and a merger of the cement and aluminium companies into JSW Holdings Ltd will increase the balance sheet and assets of JSW Holdings Ltd," a senior official of the company said. He declined to be named as he is not authorized to speak to the media.

JSW Holdings is a non-banking financial firm incorporated in July 2001, in which the Jindal family and promoter firms own 76%. In the same year, Jindal Iron and Steel Co. Ltd hived off its investments into a separate firm, JSW Holdings, and merged the steel business with JSW Steel Ltd. The company website describes JSW Holdings as “an investment company of the JSW promoters group with its investment mainly in Jindal Group of Companies with other companies".

Both the unlisted companies, JSW Cement and JSW Aluminium, are wholly owned by Sajjan Jindal.

JSW Aluminium was incorporated in July 2005 as a special purpose vehicle to build a 1.4 mt alumina refinery in Andhra Pradesh. As part of the deal, the government of Andhra Pradesh has ensured the supply of bauxite, the raw material for aluminium.

JSW’s cement business is an offshoot of the firm’s main steel business, using slag, a byproduct of steel making, to make cement. JSW Cement has a 0.3 mt portland slag cement-making capacity at its 6.8 mt steel plant at Vijayanagar in Karnataka.

Krishnamurthy Vijayan, executive chairman at JP Morgan Asset Management India Pvt. Ltd that manages Rs4,252 crore, said the deal will have to be looked at in the light of whether it is a cash for shares deal, or a stock swap.

Other issues, he said, would be the valuation of the deal and whether there were any issues with the unlisted companies.

“Incubation is an activity one manages with low level of resources and once some of these projects gain critical mass and need greater funding to add more value, it makes sense to merge with existing companies to leverage their funding power," said Manesh Patel, partner (advisory services) at audit and consulting firm Ernst and Young India Pvt. Ltd.

However, the process makes sense as long as it increases shareholder value, he added.

The promoters needs to invest Rs450 crore to increase capacity at the cement plant to 2.5 mt, JSW Steel’s joint managing director M.V.S. Seshagiri Rao had told Mint in September last year.

Led by IDBI Bank Ltd, a consortium of lenders has already sanctioned Rs1,950 crore for the cement plant, while another group, led by ICICI Bank Ltd, has approved Rs3,000 crore for the alumina refinery.

“We will raise debt in the holding companies and use it as promoters’ equity to fund our cement plant and expand our steel capacity," Rao had said at the time. The debt will be repaid from dividend inflows from the operating companies, he had added.

“By end of financial year 2010, JSW steel plants will produce 3.5 million tonnes of slag, which is sufficient to produce 7 million tonnes of cement," JSW Cement said on its website. The company has plans to eventually raise cement capacity to 30 mt.

It also plans to set up cement plants adjacent to all of its planned steel plants so as to utilize the slag generated.

Besides, the company is also planning a greenfield cement plant in Kurnool district of Andhra Pradesh where the state government has allotted limestone mines to the firm.