Hindalco likely to offload stake in group companies

Hindalco Industries, the flagship company of the Aditya Birla group, may sell stakes in group companies to raise funds to repay a part of the $3-billion bridge loan it obtained to buy Novelis, bankers said.

Hindalco may sell a part of its Rs 2,081.34-crore stake in group companies, including Grasim Industries, Idea Cellular and Aditya Birla Nuvo, to fund the repayment. The Birla group company paid $6 billion for the acquisition.

"The company hasn’t fully utilised $447 million it raised through a rights issue in 2006. Additionally, it plans to raise $1 billion through its special purpose vehicle, AV Minerals, for repaying the loan. The remaining amount is expected to be raised through sale of cross-holdings," said a banker close to development. An email sent to Hindalco executives did not elicit a response.

Hindalco may either ask the group companies to buy back its stake or sell it to other group companies, a source said. The current market condition is not attractive to fetch a better price through sale of stake to third parties. "In this scenario, Hindalco may sell the cross-holdings to the group companies themselves," the source added.

The company has to repay the bridge loan by November 10, 2008, for which it concluded a rights issue worth Rs 5,047 crore on October 10.

The issue devolved on its underwriters after Hindalco’s stock price fell below the rights offer price. ABN Amro, Deutsche Equities, Citigroup Global Markets, DSP Merrill Lynch and SBI (along with SBI Capital Markets) were the five underwriters for the issue.

According to sources, Hindalco’s rights issue was subscribed to the extent of 56 per cent, including the 31.4 per cent contribution of the promoters. The underwriters bought a little over 34 per cent of the issue, or shares worth Rs 1,700 crore.

At Tuesday's share price, Hindalco owns Rs 1,234.18 crore worth of shares in Idea, the fifth largest telecom operator in the country. It has a 7.37 per cent stake in Idea. The company's 2.51 per cent stake in Grasim is valued at Rs 277.96 crore, while the 9.1 per cent stake in Aditya Birla Nuvo is worth Rs 569.20 crore.

Hindalco’s stock, which has declined by 43 per cent in a month, fell 1.68 per cent to Rs 64.35 at the close of trading on Tuesday against its issue price of Rs 96.