Mumbai: The promoter of Hindalco Industries Ltd, India’s largest aluminium producer, and chairman of conglomerate Aditya Birla group, Kumar Mangalam Birla purchased 2,908,000 shares of Hindalco in two transactions from the open market even as the company is trying to raise money through an ongoing rights offering.
The transactions raise Birla’s stake by 0.17% to 31.59%. While the cost of the acquisition or the exact date of the purchase was not disclosed, at Monday’s closing price of Rs96.35 a share, the transaction would be valued at Rs28 crore.
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Hindalco shares closed Tuesday at Rs94.80 a share, lower than the rights issue price of Rs96 a share.
On Monday, Hindalco told the Bombay Stock Exchange (BSE) that IGH Holdings Pvt. Ltd, one of the promoters, had bought 1,968,213 shares. Subsequently, on Tuesday, it disclosed another transaction in which IGH bought 940,000 additional shares. IGH Holdings, which is privately held by Birla, held 7.2% of Hindalco before the last two purchases.
A spokesperson for the Aditya Birla group declined to comment citing the so-called “silent period” for the company’s ongoing rights issue.
Hindalco is the only company on the BSE 30-share benchmark index that is trading at below its book value of Rs127.45.
The book value is the total value of the company’s assets that shareholders would theoretically receive if a company were liquidated. Book value can also indicate whether a stock is underpriced or overpriced, depending on its market value.
The rights issue, which opened on 22 September, is aimed at raising Rs5,048 crore from its existing shareholders to repay a part of a $3.03 billion (Rs14,544 crore) loan to buy Canadian aluminium company Novelis Inc. for $6.2 billion in 2007.
The issue, which offers three shares for every seven shares held by shareholders, closes on 10 October. The promoters have also informed the market regulator, Securities and Exchange Board of India, or Sebi, that they will subscribe up to 50% of any unsold rights issue shares. Five bankers have also underwritten the rights issue up to 40%.
Additionally, Hindalco had, on 11 April 2007, issued 80 million preferential warrants to IGH at Rs173.87 each and that can be converted into an equal number of equity shares for Rs1,390.96 crore, or a 4.56% stake, according to the rights issue prospectus filed with Sebi.
IGH paid Rs139.09 crore, or 10%, of the total amount while the rest is due by 10 October, the same day the rights issue closes. Should they fail to convert the warrants, they stand to lose this amount to the company, said Jayant Thakur, a Mumbai-based chartered accountant specializing in securities law.
However, IGH stands to save Rs491.87 crore if it buys 80 million equity shares Rs760 crore, at a market price of Rs96 a share for a 4.56% stake. That way, even it loses its 10% initial money, it still stands to save Rs491.87 crore.
The Business Standard reported on Monday that there was a possibility the Hindalco promoters might not convert their preferential warrants into equity. However, a company can seek an extension from Sebi on the grounds of being an exceptional case, Thakur said. Such requests, though, as a matter of precedent, have been granted only to sick companies, he added.