Mumbai: Diversified conglomerate Aditya Birla group may pick up 50% of group company Hindalco Industries Ltd’s rights issue by buying the unsold shares, it has told capital market regulator Securities and Exchange Board of India, or Sebi.
The Rs5,047.70 crore issue opened on 22 September and closes on 10 October. The promoters own 31.43% stake in the aluminium and copper producer.
The group—led by chairman Kumaramangalam Birla, 41, and with interests in cement, yarn, carbon black, insulators and business process outsourcing, besides aluminium and copper—said in the rights issue prospectus filed with Sebi that the promoters and group companies will fully subscribe the issue in proportion to their shareholdings.
Birla and his group’s 14 investment companies that own 31.43% in Hindalco, can increase their stake to 37% if they buy the unsold shares.
The promoters can further increase their stake by 4.56% if group firm IGH Holdings Pvt. Ltd, that owns 7.2% of Hindalco, exercises its option to convert 80 million preferential warrants it had bought last year to equity shares in 2010.
The firm has entered into an agreement with five bankers to underwrite 40% of the unsold shares of the issue with each banker subscribing 8% each. The bankers are ABN Amro Asia Equities (India ) Ltd, Citi Group Global Markets India Pvt. Ltd, DSP Merrill Lynch Ltd, Deutsche Equities India Pvt. Ltd and State Bank of India.
It has paid a fee of Rs60.72 crore to the five underwriters. The group has assured investors that the public shareholding will not fall below the minimum 10% specified in the listing agreement with the stock exchanges.
The money, raised from the rights issue that allows shareholders to buy three shares for every seven shares held, will be used to repay part of the $3.03 billion (Rs14,090 crore) bank loan taken by its unit AV Minerals (Netherlands) BV to buy its Canadian aluminium can-making subsidiary in 2006 for $6.2 billion.
Hindalco had guaranteed the loan when it bought AV Minerals last year and will have to repay the bridge loan by November. It had raised Rs2,182 crore in 2006 through a rights issue and invested Rs393 crore in its wholly owned subsidiary Utkal Alumina International Ltd that is building an alumina smelter in Orissa.
The firm is planning to use the unutilized Rs1,789 crore from the 2006 rights issue to repay the loan for which it would seek a nod from shareholders.
Hindalco said it would use cash flows from operations and borrowings to repay the loans. In case it is unable to raise enough resources to repay the loan taken for acquisition, it may use additional cash reserves, including the sale of some investments to pay the outstanding loan.
The Re1 face value Hindalco’s stock closed at Rs99.10 on Friday on the Bombay Stock Exchange. At this price, its market capitalization is Rs17,371 crore. The rights issue is priced at Rs96 per share.