Mumbai: The $12 billion Aditya Birla Group may hike its stake in group flagship Hindalco Industries Ltd beyond the 35.05% that will be achieved through a preferential issue of equity shares and warrants to promoters.
Speaking at the company’s extraordinary general meeting (EGM) on 28 March, Kumar Mangalam Birla, chairman, Hindalco, said the promoters are looking at increasing their stake. “This (the preferential allotment of the company’s equity to its promoters) was the first step to increase promoter holding,” he said. The EGM was convened to seek shareholders’ consent on the preferential allotment of equity worth Rs2,600 crore ($565 mn) to promoters. Hindalco’s board had earlier approved the issue of up to 6.75 crore equity shares and eight crore warrants to the promoters.
The $565 million will be used to fund the copper and aluminium producer’s capital expenditure plans. Part of the sum will also be used to part- finance the $6 bn acquisition of Novelis, a leading global player in aluminium rolled products market, a Aditya Birla Group spokesperson said.
The preferential allotment takes the promoters’ stake in the company to 35.05% from the previous level of 26.7%. The promoters’ stake in the company has been increasing gradually from 21.4% in March 2001.
Addressing shareholders’ queries, Birla said the Novelis acquisition would hurt the company in the short-term. “But the picture after that will be worth it,” he said. According to him the leveraged buy- out of Novelis will not affect any previously approved Hindalco plans.
With many shareholders expressing concern about the steep price of the Novelis acquisition, Hindalco’s management emphasized that the Novelis acquisition will benefit the company. “We will become the fifth-largest aluminium company in the world and the largest player in the rolled products space,” Birla said. The group is currently the fourth-largest aluminium producer in Asia.
Birla also added that the buy gives Hindalco access to technologies that it does not currently possess. He said that the cost of debt raised to fund the acquisition was among the lowest available. The company has taken on a debt of $2.4 bn for the Novelis buy.
Hindalco’s shares on 28 March closed 2.36% down at Rs130.1 on the Bombay Stock Exchange; the exchange’s benchmark index, Sensex was down 1.83%.