Mumbai: Even as it looks to raise $3.1 billion (Rs12,755.3 crore) in loans to buy Novelis Inc., Hindalco Industries Ltd has managed to convince lenders of the Canadian company not to press for immediate repayment of $2.4 billion in loans and bonds.
Because Hindalco will delist Novelis from the New York Stock Exchange, among others, the agreements Novelis had with banks would have required the Canadian firm to repay immediately all of its debt.
Novelis had outstanding term loans worth $1 billion and $1.4 billion in bonds.
“We had arranged a $2.4 billion refinancing backstop from ABN Amro Bank and UBS AG to refinance the debt owed by Novelis through a take-out plan,” says Sunirmal Talukdar, president and chief financial officer of Hindalco.
But a senior Hindalco official, who did not want to be identified because of company policy, says the company and its advisors have managed to convince all the debt holders not to press for immediate repayment of the loans.
Indeed, Talukdar says, Hindalco may now look to refinance the loans on better terms, post the takeover on 15 May. The assent by the Novelis debt holders will make it easier for Hindalco to raise the $3.1 billion in dollar-denominated loans for its subsidiary that is acquiring the Novelis shares.
The loans to be raised by the subsidiary are being guaranteed for payment of interest and repayment of principal by Hindalco.
In addition, Hindalco will also be investing $450 million from its internal resources for the almost $3.5 billion to be paid to shareholders of the world’s largest aluminium rolled products company.
Hindalco is rated by Crisil Ltd as highest safety for its long-term debt obligations.
Asia’s fourth-largest aluminium producer posted net sales of Rs18,313 crore and a net profit of Rs2,564.3 crore for the year ended 31 March.
In contrast, Novelis posted a loss of $275 million on net sales of $9.8 billion for calendar year 2006. Novelis also had cash of $73 million as of end-December.
Hindalco is far more profitable and has a total debt that is less than its paid-up equity capital and reserves, and has operating profits that cover its interest payout several times over. This makes Novelis, when controlled by Hindalco, a more creditworthy alternative to a stand-alone Novelis.