Hindalco Industries will issue up to 150 million preferential warrants to the promoters and raise Rs 2,000 crore, the company that is part of the Aditya Birla Group said on Thursday.
“The board has approved the preferential offer,” managing director D Bhattacharya informed. “This money will be used in the various expansion plans.”
The warrant price for this issue will be calculated on a formula prescribed by Securities and Exchange Board of India (Sebi). An extraordinary general meeting to get shareholders’ approval for the matter is scheduled on March 7.
The company is yet to achieve the financial closure of its Rs 10,000-crore Aditya smelter project. Chief executive officer Praveen Maheshwari said the entire Rs 2,000 crore was not for this. “We also have other expansion projects. This money will be used accordingly,” he told Business Standard. The primary aim of this preferential issue was to “maintain a healthy debt-equity ratio”.
Hindalco’s debt-to-equity ratio was 0.5:1 at the end of the third quarter. Maheshwari said the aim was to not let the ratio go over 1:1. “This warrant issue will help us keep the ratios within our comfort levels,” he said. “The money will be used up in projects as and when the need arises.”
This is not the first time Hindalco has looked towards its promoters for funding. In 2007, it had mulled a preferential warrant issue to Rs 1,400 crore. In 2009, the company raised Rs 2,800 crore through a qualified institutional placement (QIP) issue to fund its expansion plans.
As for the Aditya smelter project, Maheshwari said the interest rates were high at the moment. “We are waiting for these to come down before we close the financing,” he added. The project is based on a 7:3 debt-equity ratio; it is slated to go on stream in 2014. Hindalco said no projects would face delays on account of shortage of funds. The mopping of Rs 2,000 crore when the financial markets are not opportune to tie-up funds is a step towards this aim.
The company did not give an exact idea of money spent on the Aditya project, but said the work was on and the project would be completed within the stipulated time.
The company also announced results for the third quarter ended December 31. The net profit dropped to Rs 451 crore, as against Rs 460 crore last year. Net sales, at Rs 6,647 crore, grew 11 per cent on the back of increased production and improved realisations. The profits dropped because of spiralling input costs. Bhattacharya said the input cost of aluminium alone went up by Rs 250 crore in the quarter.
Talking about the outlook for aluminium, he said the LME (London Metal Exchange) volatility would continue. “Softer demand and smelter closures are expected to leave the market with smaller surplus in 2012,” he noted.
The LME prices are “too low” and high cost curve “warrants higher LME” for the viability of nearly one-third of the smelters across the globe, he added.