Hinduja Foundries, the foundry arm of Hinduja Group, is planning to raise around Rs 300 crore from its promoters, including country's leading commercial vehicles major Ashok Leyland. The fund raising will be through non-convertible cumulative preference shares. It may be noted the company earlier planned for rights issue, but later it was decided to withdraw due to market condition.
In a communication to shareholders, Hinduja Foundries stated that in the current scenario of continuous incurrence of losses, the company had constraints in obtaining long term fund from the market/ institutions to meet the expenditure including cash losses, which had to be met through working capital and short term loans.
“To address this situation, the company has decided to issue Non-Cumulative Convertible Preference shares for a total value of Rs 300 crore, which would be subscribed by the promoters of the company”.
Out of the this amount, Rs 150 crore has been subscribed to and paid by Ashok Leyland, one of the promoters, during September-October 2012. The balance of Rs 150 crore is programmed to be subscribed in March 2013 as per the current schedule of subscription. To a certain extent, this infusion of equity by the promoters will reduce debt and enable the company to meet the cash losses through term funding, according to company's Annual Report.
Recently addressing Analysts Ashok Leyland's Chief Financial Officer K Sridharan said that the investment in Hinduja Foundries will ensure casting supply for Ashok Leyland
It may be noted during the 18 months period ended September 30, 2012 the company has reported a loss of Rs 291.34 crore as compared to profit of Rs 7.48 crore in 2010-11.
The company stated that it has faced several challenges during the year in the form of contraction in demand due to market slow down, customers not adequately compensating for cost increases, acute power shortage in Tamil Nadu and Andhra Pradesh leading to purchase of power from outside and challenges relating to volume ramp up.
On the withdrawal of rights issues, the company said that, considering the volatile stock market conditions, price of company's shares quoted at the bourses and therefore challenges to achieve complete subscription of the issue. Since the promoters of the company hold 70.38% of the share capital and further, since 4.25% of the equity share capital is held by overseas depository, promoters would have been able to subscribe on a small portion of the issues in excess of their rights entitlement (due to the restrictions imposed by the capital market regulations prohibiting promoters holding shares in excess of 75 %) in the event of under subscription to the issues.
All these factors have promoted the company to withdraw the rights issue.