Aditya Birla Nuvo plans Rs 1,500 cr equity issue

Aditya Birla Nuvo, the fertiliser to financial services conglomerate of the A V Birla group, is considering plans to raise fresh equity of about Rs 1,500 crore, mainly to finance the group’s life insurance business.

A banker familiar with the development said a rights issue was being considered since market conditions were improving, but the group was also looking at options like preferential allotment and promoter-guaranteed fully-convertible debentures.

The company is considering options for an equity infusion because its plans to raise Rs 4,000 crore from promoters through a warrant issue are unlikely to fructify. In April 2008, the company had allotted 20.5 million preferential warrants to Group Chairman Kumar Mangalam Birla at a conversion price of Rs 2,007.45. The warrants are due to mature in September.

The company shares, which closed at Rs 528.10 on the Bombay Stock Exchange on Wednesday, are trading around 74 per cent below the conversion price. This has made the conversion of the warrants unlikely and the company is in talks with bankers to find alternative options.

“We have not yet finalised the option that we will use for raising equity. It is still premature and will be finalised in two or three weeks,” said Aditya Birla Nuvo Chief Financial Officer Sushil Agarwal.

On Tuesday, the company reported a loss of Rs 141 crore for the quarter-ended March 2009 on the back of mounting losses from life insurance, apparel retail, and BPO businesses. For the full financial year (2008-09), the company reported a loss of Rs 430.52 crore, against a net profit of Rs 150.78 crore in the previous year.

The life insurance venture — Birla Sun Life — saw operating losses rise 57 per cent to Rs 686.56 crore during the year-ended March 2009, against Rs 437.60 crore in 2007-08.

A senior company executive said the group had lined up capital expenditure of around Rs1,000 crore during the current financial year, while another Rs 800 crore will be required in 2010-11.

The company requires equity to expand because its debt is already high. At the end of the last financial year, it had Rs 4,300 crore of debt, while its net worth was Rs 3,744 core. The company also had a treasury surplus of Rs 800 crore, which gives it a net gearing of 0.93. This gives Aditya Birla Nuvo little room to raise fresh debt.

The company is focussing on the life insurance business as it expects over half the revenue to come from this sector by the end of 2010-11, the year when Birla Sun Life Insurance is expected to break even.

More companies have been returning to the stock market to raise funds in recent weeks. In April, textiles company, Alok Industries, raised Rs 450 crore thorough a rights issue. The issue of the company was subscribed 118 per cent. In addition, Adani Power has resumed attempts to raise around Rs 2,000 crore through a public offer.