LIC stays away from the issue as the share price falls below the offer price.
The Rs 5,047-crore right issue of Hindalco Industries, today devolved on the merchant bankers, as large institutional investors, including Life Insurance Corporation of India (LIC), did not participate.
LIC’s decision came after Hindalco’s share prices fell below the offer price, making it unattractive for the insurance company to participate in the offer.
Sources familiar with the developments said that the issue was subscribed around 50 per cent after promoters bought their entitlement. The promoters have underwritten 50 per cent of the issue including their entitlement of 31.4 per cent. “Since we are still in the compilation process, the actual gap would be known only on Monday, said an investment banker who was an advisor to the issue.
Hindalco’s share price today fell 11.2 per cent to Rs. 80.65 as against the offer price of Rs. 96 making it unattractive for investors to buy shares. Rights shares are generally priced below the market to lure shareholders to invest.
But a declining stock market has wiped out the initial 20 per cent discount the company offered.
“The last closing price was the clincher. It was difficult for the investment committee of LIC to justify the investment,” sources said. LIC owns 11.13 per cent stake and to subscribe to its entitlement, it would have invested Rs 561 crore.
Bankers handling the issue, refused to comment. Besides LIC, Franklin Templeton Investment Fund, which owns 3.35 per cent stake in Hindalco, has also not participated in the right issue, sources said.
The five underwriters, ABN AMRO, Citigroup, Deutsche Equities, DSP Merrill Lynch and State Bank of India along with the promoters will now have to chip in with the required amount for the offer.
The promoters have underwritten up to 50 per cent of the issue while underwriters have committed another 40 percent.
Hindalco’s share price plunged, in line with a drop in the benchmark Sensitive index, even as promoters continued to buy shares from the market to support the price. The slump was despite, IGH Holdings, an investment arm of promoters bought about 50,00,000 shares from the secondary market in the last three trading sessions.
In addition, the promoters also allowed the 80 million warrants that were issued in April 2007 to lapse. The last day for the conversion was October 10 and the conversion price was Rs 173.87 per share.
According to the investment bankers, the total subscription was less than 50 per cent. This includes the promoters’ portion of 31.4 per cent and GDR holders of 10 per cent. The final figure would be disclosed after the ‘compilation process is complete,’ said one of the bankers handing the issue.
Once the official announcement for the devolvement is being made, the underwriters will have to subscribe up to 40 per cent, which is equivalent to Rs 2,000 crore. For each of the investment banks, the underwriting obligation is expected to the tune of Rs 400 crore.
