Hindalco rights issue may devolve

MUMBAI: The Rs 5,047-crore rights issue of Hindalco Industries is set to devolve on the underwriters, thanks to the financial crisis gripping much

of the world. Although the quantum of the devolvement will be clear on Friday after the closure of the issue, sources close to the offer said that the figure is expected to be in the range of at least 15-20%. The five underwriter banks are ABN Amro, Citigroup, Deutsche Bank, DSP Merrill Lynch and State Bank of India. They may have to acquire the remaining 15-20%.

A source said the offer has managed to attract subscription of only 45% (this may include a large chunk subscribed by the promoters) till Wednesday, one working day before the closure (Thursday was a holiday). This includes GDR holders’ application to buy their entire entitlement of nearly 11%.

The Aditya Birla group, the promoters, has promised to subscribe to 50% of the issue, against its entitlement of 31.43%. It is understood that domestic financial institutions, who have a combined 15% stake, may opt for the issue unless there is no dramatic crash in the stock markets, a banking source said.

A source close to Hindalco said the company would manage to sail through the issue. “The Hindalco stock fell less than its peers in the current meltdown. It has a book value of Rs 140 and treasury of Rs 9,000 crore. It’s a long-term growth story.” When contacted, the Birla group spokesperson declined to comment.

Hindalco’s rights issue has been hit by the crash in the global financial markets. Its share price has fallen below the rights offer price of Rs 96. The company’s shares closed at Rs 90 on Wednesday on the Bombay Stock Exchange.

It is learnt that the Birlas would directly pick up 41% of the issue and would nominate investors for another 9%. With this, the rights issue will get a 90% response including the devolvement to the underwriters. Post-rights, the Birlas stake may go up to 47-48% on the expanded capital.

Hindalco launched the rights issue to part-finance the acquisition of Canadian aluminium company Novelis, which it bought for an enterprise value of $6 billion last year. The company had taken a bridge loan of $3.03 billion for the takeover, which expires next month.

In addition to this issue, Hindalco has stitched together a $1-billion loan from a consortium of 11 international banks to finance the Novelis acquisition. The term for the loan is nearly five years. The loan will be raised at a rate of LIBOR plus 280 basis points. The Libor, or the London interbank rate, is the rate at which banks lend money to each other. Hindalco had raised bridge loans at Libor plus 80 basis points last year.

Via:E.T
10 Oct, 2008, 0226 hrs IST,Dev Chatterjee & Kausik Datta, ET Bureau