BSRM Steel Mills Ltd is set to merge with its parent company BSRM Ltd, a move that will help the country's leading rod producer cut costs and boost profit.
The board of directors of the group approved the merger with effect from February 1, BSRM Ltd, a listed company, said in a security filing yesterday.
The main activity of BSRM Ltd is to manufacture MS (mild steel) products. BSRM Steel Mills is a melting unit and produces raw materials for BSRM Ltd.
As a non-listed company, BSRM Steel Mills has to pay 10 percentage points higher corporate tax compared to a listed firm and bear some extra costs as a separate entity, said a top official of BSRM Ltd.
Now, these costs will reduce, he said.
BSRM Ltd's shares closed 6.17 per cent higher at Tk 74 on the Dhaka Stock Exchange yesterday.
This is the second merger for the companies within the Chattogram-based group. In 2017, BSRM Steel Ltd and BSRM Iron and Steel Company Ltd merged.
"BSRM Steel Mills supplies raw materials. So, the merger will be beneficial at the end," said Tapan Sengupta, deputy managing director of BSRM Ltd.
BSRM Steel Mills doesn't sell its products in the market, so there is no need for it to operate as a separate entity, he said.
BSRM Steel Mills produces billet, a raw material used to manufacture rods. It went into production in 2016. Currently, the company produces 860,000 tonnes of billet every year.
When asked whether the merger will provide any tax relief, Sengupta said there might be some benefits.
"So, the profits of the company might be positively impacted," he added.
Owners of BSRM Steel Mills will get the shares of BSRM Ltd at a ratio of 1: 0.5005. To complete the merger, BSRM Ltd will have to issue an additional 10.86 crore shares. The shares will be locked for three years.
According to its financial statement, the company's long-term and short-term borrowing was Tk 2,615 crore on June 30 in 2019. Net asset value per share was Tk 34.57 on the day.
Earnings per share of BSRM Ltd were Tk 7.88 in 2020. It was Tk 2.98 for BSRM Steel Mills.
If a merger brings down the cost of a company and increases profits, then it is good news for shareholders, said Md Moniruzzaman, managing director of IDLC Investments.
The government's development projects have had a positive impact on the Tk 50,000-crore steel industry in Bangladesh, according to market players.
Per capita steel consumption in Bangladesh almost doubled in eight years to more than 45 kilogrammes in 2018. It is lower than the global average of 208 kg, according to the World Steel Association.
The figure stands at 65 kg in India, 400 kg in South Korea, and 1,000 kg in Japan.