Hindalco rights issue: with long-term promise

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: raised by their subsidiary companies worth $3.03 billion. This is the loan that needs to be repaid by November 10, 2008 in full. The company intends to do the same by taking a $1 billion loan incurred by AV Minerals from a syndicate of banks including ABN AMRO, Citi, Deutsche Bank and SBI. However, which banks will provide how much money and from where will they be providing the same is yet to be clarified. Reports indicate that the loan will be taken with an interest of 280 base points. The company also has an unused amount of $0.40 billion from the January 2006 rights issue, and if the shareholders approve of it, they hope to change the objectives of that issue to utilise the money for repayment of loan.

This gives the company a total of $2.62 billion leaving them short by approximately $0.41 billion that internal accruals should make up for.

While the plans look ambitious to say the least, with the promoters planning to subscribe to their full extent being 31.43% of the issue, investors should feel secure seeing their confidence and past records. In an event that the issue is not fully subscribed for, the promoter and promoter group may apply for additional shares as long as their overall subscription does not go beyond 50% of this issue.

The lead managers of the issue include five banks that will be underwriting the issue and have agreed to subscribe to any of the shares which have not been subscribed for by the shareholders, and which cannot be subscribed for by the promoters. The Aditya Birla Group also might pick up some of the unsubscribed shares, leaving the bankers to effectively underwrite approximately 16%. This was concluded since Life Insurance Corp of India Ltd, which owns 11.13% and 200 foreign institutional investors holding 12% are expected to subscribe to the maximum as well.

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