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Tamal Bandyopadhyay
Mumbai, Feb 5: The Centre has cleared National Aluminium Company's capital recast plan converting 50 per cent of the public sector undertaking's equity into debt. The debt, in turn, will be subscribed to by banks and financial institutions by way of private placement of six-year, 14.5 per cent (semi-annual) bonds.
The Government, which holds an 87 per cent stake, will generate Rs 535 crore through this "disinvestment process" this fiscal. According to industry sources, SBI Caps -- the lead arranger and advisor to the issue -- has already tied up the debt with banks and financial institutions.
With this, the Centre's mopup through the disinvestment route will be close to Rs 950 crore in fiscal 1999 against the targeted amount of Rs 5,000 crore. The Government has so far mopped up Rs 225 crore through the Concor disinvestment and another Rs 184 crore through the Gail issue which was concluded two days ago.
According to market sources, Nalco has got an "overwhelming" response for its six-year 14.5 per cent (semi-annual) paper. When contacted, SBI Caps managing director and CEO Birendra Kumar said: "We have got the mandate. The paper is not yet formally placed in the market. We will be able to conclude the deal next month after completion of all formalities."
Sources said the deal is almost through and the lead manager has got commitments from banks and institutions for the entire issue. Kumar of SBI Caps refused to comment on the issue.
This will be the first instance of the Government agreeing to convert a part of the equity of a public sector organisation into debt. According to the Nalco restructuring plan -- worked out by the State Bank of India's investment banking arm -- 50 per cent of its Rs 1,288.62-crore equity will be converted into debt. The Centre holds 87 per cent stake in the company, Unit Trust of India holds 8 per cent and the rest is held by the public.
Under the recast scheme, 50 per cent of the paid-up equity capital will be converted into debt at face value by issuing 14.5 per cent six-year non-convertible redeemable secured debentures. "At 14.5 per cent, the six-year bond of the triple-A rated company is finely priced. The market has enough appetite for this paper," sources said. SBI Caps' Kumar is confident of raising the funds before March-end.
The Nalco debt issue may give the Centre's disinvestment plan a shot in the arm which has been cold shouldered by investors. Gail could sell 30.58 million shares against a target of 42.25 million shares through the book-building process at a price of Rs 60, the lowest end of the band. The foreign institutional investors (FIIs) picked up only 15 per cent of the offering.
The roadshows for the VSNL equity offering have drawn a blank with no domestic investor making any bid. The company is likely to take the global depository receipts (GDR) route to generate funds. A common book for the domestic and global investors is being built for the disinvestment of 11 million VSNL shares.
According to merchant banking sources, time is fast running out for MTNL for successful completion of the buyback process within this fiscal, despite the clearance given by the MTNL board. "It is yet to get the CBDT clearance for dividend tax, solvency certificate, etc. It will be extremely difficult to complete the process before March 31," sources said.
That has left the Centre with the Indian Oil disinvestment plan. It is likely to generate around Rs 500 crore through private placement of equity with banks and financial institutions which will be followed by a retail domestic issue.
"By an optimistic estimate, the Centre will be able to generate about Rs 2,500 crore through the disinvestment route against a targeted Rs 5,000 crore. The equity swaps among IOC, ONGC and Gail is at best expected to generate another Rs 2,500 crore this fiscal," merchant banking sources said.
INSIGHT
Win-win situation for shareholders
This is a win-win deal for all stakeholders. Nalco achieves its long-standing objective of reducing its equity and showing a higher earnings per share. Shareholders will thus benefit. In the process, the Government also gets funds. The subscribers to Nalco's new paper will also get quality debt at a good price. This route towards obtaining funds is perhaps a better alternative to the cross-holding route.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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