Likely to subscribe to additional shares in rights issue instead.
With the stock market touching new lows as a result of the global financial turmoil, the promoters of Aditya Birla Group firm Hindalco, India’s largest aluminium manufacturer, are unlikely to convert 80 million preferential warrants issued to them in April 2007 but will subscribe instead to additional shares in the company’s current rights issue.
The preferential warrants were convertible at Rs 173.87 per share against the rights issue price of Rs 96.
“The promoters will subscribe to additional shares in the ongoing rights issue because it will be much cheaper than converting the warrants,” confirmed sources close to the group.
Hindalco’s share is trading at Rs 96-97. The last date for the conversion of warrants is October 10, which is also the closing date of the rights issue.
The promoters, who hold 31.4 per cent of the company’s equity, have guaranteed to subscribe to 50 per cent of the rights issue. This means that the promoters would subscribe to a minimum of 262.90 million shares, 92 million more than their entitlement of 170.51 million shares.
For these additional shares, the promoters need to pay roughly Rs 874 crore, which would also increase their holding to 37 per cent. If they had opted for a full conversion of the warrants, the promoters would have paid a residual amount of Rs 1,252 crore (they had paid 10 per cent upfront) to increase their stake 4.56 percentage points.
Speaking on behalf of the company, a senior official of an investment bank advising the rights issue, said: “It is logical to subscribe to additional shares in the rights issue, which is priced at Rs 96 rather than converting the warrants in which the residual amount is much more than the price of right issue.”
| HINDALCO LOSES SHEEN Issue expenses for the Rs 5,047-crore | |
| rights issue | Rs Cr |
| Underwriting commission | 60.57 |
| Lead manager and selling commissions | 50.47 |
| Printing and distribution | 2.08 |
| Other (registrar’s fees, legal fees, etc) | 7.73 |
| Advertising and marketing expenses | 0.80 |
| Total | 121.65 |
In April 2007, Hindalco had issued 67.5 million equity shares and 80 million warrants at Rs 173.87 each to the promoters’ group company against the prevailing price of around Rs 140 per share.
The equity portion was fully subscribed and the warrants were to be converted into an equal number of equity shares. The promoters paid 10 per cent of the warrant amount, which is equivalent to Rs 17.387 per warrant, or Rs 139 crore in total.
The company paid a commission of Rs 60.50 crore to underwrite 40 per cent of the issue (Rs 2,018 crore out Rs 5,047 crore) and an additional Rs 50.5 crore as selling commission, facts that reflect the state of the market, said a banker.
