 "Top corporates on fund-raising spree")
On Tuesday, India’s biggest construction and engineering major L&T said in a communication to shareholders it would raise Rs 3,500 crore via share sale to large investors and another Rs 6,000 crore through non-convertible debentures for capital expenditure, equity infusion in subsidiaries and debt repayment in the current financial year. A senior company executive said the proposal to raise Rs 3,500 crore is enabling in nature because according to rules, shareholder approval for a qualified institutional placement (QIP) is valid for a year and the existing approval is due to lapse.
As of March 31, L&T had total debt of Rs 11,500 crore on a stand-alone basis, of which debt worth Rs 8,500 crore is long-term in nature. The annual debt repayment is around Rs 1,000 crore. “We will be seeking share holders’ nod through a postal ballot. The amended Companies Act requires companies to seek share holders’ approval for long-term debt instruments, which are tradable on stock exchange. We are seeking approval for Rs 6,000 crore but in reality we may raise only Rs 3,000-4,000 crore in debentures,” said the executive quoted above. He added the capex funding will be largely maintenance-related including replacement and overhaul of plant and machinery both in India and Gulf region.
Taking a leaf out of Idea Cellular, which raised Rs 3,000 crore as share sale to QIPs last week, Anil Ambani’s Reliance Communications is also considering raising about Rs 1,800 crore through QIP in the next two months. The proceeds will be used to cut its Rs 40,200-crore net debt. According to a Bloomberg report, the company received shareholders’ approval in August to sell new shares equivalent to as much as 25 per cent of its capital.
Market sources expect Kishore Biyani-owned Future Retail to raise Rs 600 crore, with the promoters putting in Rs 400 crore and the rest by other investors. The money thus raised will be used to repay its debt. Future Retail is holding a board meeting on June 11 to decide on the matter.
In a statement to the BSE, Future Retail said it would hold a board meeting to explore various options of raising funds including issue of equity shares, debt or hybrid instruments or warrants convertible into equity shares of the company to qualified institutional buyers, promoters, investors on a preferential basis and issue equity shares of any class to existing shareholders on a rights basis.
The company is also expected to take a call on selling stake in Future Lifestyle Fashions in which it holds a 20 per cent stake, sources said.
A mail sent to the company spokesperson did not elicit any response.
According to analysts, raising new funds is vital for the company given its high debt levels and debt to equity ratio. The firm has debt of Rs 5,500 crore on its books and it paid an interest of Rs 155 crore in March quarter of the last financial year, which is 98 per cent of its profit before interest and taxes. The company’s debt is close to 1.8 times of the equity.
“Launching a QIP issue is a good option for any debt-ridden company. Their (Future's) debt-to-equity ratio is very high; so the fund-raising will help the company,” said Abneesh Roy, associate director, institutional equities, research at Edelweiss Securities. Roy believes the various divestments done by the company is yet to result in significant reduction of the debt.
In the past, Future had sold Pantaloons fashion format to Aditya Birla Group, financial services company Future Capital to Warburg Pincus, stakes in apparel brands Biba and AND to investors. It also listed a separate company, Future Lifestyle Fashions, by hiving off the fashion business of Future Retail and Future Ventures.
Reliance Capital also sought its shareholders’ approval on May 31 to raise equity of up to 25 per cent of its issued capital. According to Tuesday’s closing price of Rs 645 a share, the company can raise up to Rs 3,900 crore. As it is just an enabling resolution, the board will take a decision as and when it need funds to “strengthen its financial position and net worth”, the company said in a notice to shareholders.