Cholamandalam to raise Rs 150 cr

Cholamandalam DBS Finance Ltd may look at raising a minimum of Rs 100-150 crore in tier II capital.

The company is likely to raise the amount partly during the current financial year and the rest in fiscal 2009. Cholamandalam DBS has the potential to raise up to Rs 300 crore in tier II capital.

"As of now, we have not taken a decision, but it is definitely an option we could explore. We might raise it either through subordinated debt, or by way of preference capital. The former option allows us to raise 50 per cent of the tier I capital, whereas, the latter would allow us to raise 100 per cent," Arul Selvan, vice-president (Finance), said.

Cholamandalam DBS on Monday also approved a rights issue to raise upto Rs 200 crore. The purpose of the rights issue is to fund the company's business growth during the current fiscal.

As on March 31, 2007, capital adequacy ratio (CAR) of the company hovered at around 12 per cent, and currently stands at around 10.5 per cent. With fresh capital infusion of Rs 200 crore, CAR is expected to touch 13 per cent.

According to the Reserve Bank of India (RBI) guidelines, a non-deposit taking non-banking finance company (NBFC-ND) should have a minimum CAR of 10 per cent.

The rights issue involves issuance of 1.42 crore shares with detachable warrants. The issue price will be Rs 140 per share at a face value of Rs 10 per share and premium of Rs 130. For every share held by existing shareholders, three new shares will be issued.

The company has approved issuance of one detachable warrant for every share allotted to shareholders under the rights issue, aggregating to 1.42 crore warrants. The rights issue process is expected to be complete by October.

Cholamandalam DBS can fix a record date for conversion of warrants within six to 18 months of the time of rights issue. Selvan said the warrants conversion option would allow the company to raise around Rs 200-300 crore depending on market price. The company might exercise one of three available options for fixing warrant price, Selvan said.

One pricing option for warrants conversion would be to provide 20 per cent discount on the average price of a share recorded six weeks prior to the record date set for warrants conversion.

The second option could involve a 20 per cent discount on the average price of a share recorded two weeks prior to the record date. The last option could be capping warrant conversion at Rs 275 per share.