Hindalco to write off debt taken for Novelis buy

Firm to use Rs 8,600 crore share premium account.

Aditya Birla Group-owned Hindalco Industries today said that it would use its Rs 8,600 crore share premium account to “write off” costs incurred on buying Canadian aluminium producer Novelis. The company also plans to use the fund for its expansion purpose.

In a note to the Bombay Stock Exchange, the company said that its board had approved “a financial restructuring exercise wherein the company along with other activities… allocate and credit to Business Reconstruction Reserve Account an amount as may be determined and considered appropriate by the Board of Directors of the Company, from the balance available in the securities premium account.”

“The aforesaid amount would be utilised for write off or adjustment of non operating/extraordinary costs on international acquisition made by the company and organic growth projects in India,” Hindalco said in the statement.

Divya Baweja, partner, BMR & Associate, a Mumbai-based advisory firm, said it's unusual for a company to transfer fund from share premium account to a re-construction reserve account. He, however, said share premium account is used for a specific purpose, including writing off losses or costs. “Usually, companies take capital reduction route,” he said.

The worst financial crisis since the 1930s has roiled stock markets and forced companies to abandon plans for fund-raising. Hindalco is examining other avenues after demand at its $1billion rights offer was 17 percent, forcing the company’s owners and bankers to pick up the rest.

Founders A.V. Birla Group and associated companies bought 39 per cent of the offer, in line with their shareholding. Hindalco acquired Novelis for $6 billion, including assumed debt, in 2007 to gain a fifth of the high-end aluminum market and access to U.S. customers including Coca-Cola Co. Hindalco said in September it plans to spend Rs 19,800 crore to expand capacity in India.