Mumbai: Investors in Hindalco Industries Ltd, India’s largest non-ferrous metals producer, subscribed to only 17% of its Rs5,000 crore rights offer, forcing the company’s owners and bankers to buy the remaining stock.
Founders Aditya Birla Group and associated companies bought 39% of the offer, in line with its shareholding.
The group will buy a further 10%, and sale arrangers acquired 34% because of the poor response, according to a filing.
The financial crisis has rocked stock markets and forced firms to abandon plans for equity and debt sales as investors hang on to cash. The poor response to Hindalco’s offer may undermine the success of Rs6,000 crore rights offers announced by Tata Motors Ltd, India’s biggest truck maker, and Suzlon Energy Ltd, a wind turbine maker, an analyst said.
“With most of (the) shares trading at below offer prices, those who want to buy can get it directly from the open market,” said Jayesh Shroff, fund manager at SBI Asset Management Co. Ltd in Mumbai. “People are averse to committing money, so these offers will get a poor response.”
Tata Motors plans to raise Rs4,200 crore by selling shares to pay for the acquisition of the Jaguar and Land Rover brands from Ford Motor Co.
Suzlon is seeking Rs1,800 crore to fund the purchase of an additional stake in Germany’s REpower Systems AG. Tata Motors’ offer closes on 20 October, while Suzlon hasn’t set a date.
Hindalco shareholders were offered three shares for every seven held at Rs96. The stock slumped as much as 12.15% to Rs69.75 in Mumbai trading on Thursday, the lowest in four and a half years.
The company has lost 64% of its value this year, compared with the 50% decline in India’s benchmark stock index, on concerns that the economic crisis will damp demand for metals.
ABN Amro Asia Equities (India) Ltd, Citigroup Global Markets India Pvt. Ltd, Deutsche Equities India Pvt. Ltd, DSP Merrill Lynch Ltd and State Bank of India will purchase 178.94 million shares, worth Rs1,720 crore, Hindalco said.
Hindalco said on 20 June it will use the money from the rights to repay part of the $3.03 billion (Rs14,817 crore today) loan taken out to fund its purchases of Novelis Inc.
The takeover in February 2007 provided the Mumbai-based company sheet mills used by car makers and access to US customers, including Coca-Cola Co.
Hindalco is trading at an estimated price-earnings multiple of 4.4, compared with more than 16-year average of 13.4.