Hindalco unveils 1:3 rights issue, to mop up Rs 5k crore

Hindalco Industries on Friday announced a 1:3 rights offer (one rights share for every three held) to raise nearly $1.16 billion (Rs 5,000 crore) to refinance its acquisition of Novelis that it bought early last year. The board of Asia’s biggest aluminium producer will later set the price of its biggest rights offer.

It also announced its results. The company’s net profit rose 11.5% to Rs 2,860.9 crore for the fiscal year that ended March 31, 2008. Revenue rose 5.4% to Rs 19,693.9 crore. Hindalco’s net profit fell 11.1% to Rs 2,387.3 crore on consolidated basis, which also included Novelis. Revenue grew 207.5% to Rs 60,668.8 crore.

Hindalco managing director Debu Bhattacharya said the company will also raise nearly $2 billion through international loans or debts, or rupee loans and treasure operations.

ET had reported on Wednesday about the possibility of a nearly $1 billion rights issue. It had also reported that the offer is likely to be three to five shares for every one held. The flagship company of the Aditya Birla group last year bought the US-based downstream aluminium maker Novelis that supplies value-added products to large US customers including Coca-Cola for an enterprise value of nearly $ 5.9 billion. As Novelis was under a debt of nearly $2.4 billion, Hindalco had to chip in nearly $3.5 billion for the purchase. While a bridge loan of $3.03 billion was needed to finance the buy, remaining amount was infused from internal accruals of the group and treasury operations of the company.

Hindalco now needs to organise $3.3 billion as the bridge loan is supposed to be refinanced in November. “The company will decide the mix of loan and bonds closer to the time of repayment,” Mr Bhattacharya said in a press conference after announcing audited financial results. Although company officials said that they have four months to meet the bridge loan redemption, they will certainly have to factor the high cost of borrowing that would result from high interest rates.

Hindalco has 122.7 crore outstanding equity shares. A 1:3 rights offer means it would issue nearly 40.9 crore of new shares. A back-on-the-envelop calculation indicates that the price of the rights offer may be fixed at Rs 120-125 a share.

The promoter Aditya Birla group holds 32% stake in Hindalco.

Share prices of Hindalco on Friday slipped 6.4% to Rs 161 in a falling market. The stock has declined 25% this year, compared with a 28 % drop in the BSE Sensex.

21 Jun, 2008, 0115 hrs IST, ET Bureau, Economic Times