Hindalco rating lowered

Hindalco Industries, India's biggest aluminum producer, had its debt rating cut two levels by Crisil on concern the company's finances may be stretched after acquiring the US-based Novelis Inc.

Crisil, a unit of Standard & Poor's, lowered the rating on the company's outstanding non-convertible bonds of Rs 1040 crore ($254 million) to AA with stable outlook from AAA, the ratings company said today in an e-mailed statement.

Hindalco on February 11 agreed to pay Novelis shareholders $3.5 billion and assume $2.4 billion of debt. The company borrowed $3.1 billion from ABN Amro Holdings NV, UBS and Bank of America to pay for the purchase. The transaction was completed May 15.

"Novelis's profitability and cash accruals are expected to remain subdued over the medium term; therefore Hindalco will be required to support the large interest burden arising from the debt-funded acquisition,'' Crisil said. Hindalco's financials are likely to be "strained'' over the next three to four years.

Hindalco's shares have fallen 6 percent this year, compared with a 3 per cent gain in the benchmark Sensitive index, partly on concern the company may have taken too much debt to fund the takeover of the US-based sheetmaker.

The stock rose Rs 3.75, or 2.3 per cent, to Rs 164 on the Bombay Stock Exchange.