India’s largest aluminium-maker Hindalco Industries, which is planning a Rs 4,992-crore rights issue, has got 50 per cent of the issue underwritten, said a banker involved with the development.
By underwriting, the banks have given the company a guarantee to buy the shares in case it is not fully subscribed.
A rights issue is a secondary market offering, in which shares are offered to existing shareholders at a discounted price. It is rare for a rights issue to be underwritten. However, since the fall in stock markets in January this year, an increasing number of companies are finding it difficult to raise money from both primary and secondary issues.
“I am not aware of any other rights issue (in India ) underwritten before,” said the banker. The company informed the Bombay Stock Exchange (BSE) on Friday that it proposed to enter into an underwriting arrangement in relation to the proposed rights issue.
On August 14, the company had announced that it would issue 520 million shares at Rs 96 each to existing shareholders, a 28.6 per cent discount to the Friday’s closing price of Rs 134.55 on BSE.
Hindalco will issue three additional shares for every seven held by its shareholders. SBI Cap, Citibank India, the Royal Bank of Scotland Group, DSP Merrill Lynch and Deutche Bank are the five banks involved in the company’s rights issue.
“If 50 per cent is underwritten, the issue then is virtually through,” said an analyst of a foreign brokerage tracking the company.
Promoters hold a 31 per cent stake in the company and they would have a similar right to buy shares in the issue. Around 10.48 per cent stake in the company is owned by various insurance companies, which are long-term investors and are most likely to exercise the option.
Hindalco is raising the money through the rights issue to part-finance the $3.03-billion bridge loan it took for the purchase of Canada-based Novelis in February 2007. The amount has to be repaid by November-end.
Usually the promoters buy the unsubscribed portion of a rights issue, but here they preferred it to be underwritten by the bankers. The successful rights issue will provide a 40 per cent of the funds required to repay the bridge loan. Hindalco has not disclosed how it plans to raise the remaining amount.
