Balco For Cap Recast Prior To Sell-Off

Public sector Bharat Aluminium Company (Balco) has suggested converting part of its equity capital into debt before taking up any disinvestment in the company.

Balco, which will be disinvested up to 40 per cent as decided by the government, has proposed converting 50 per cent of its equity into long-term debt for better leverage, company sources said.

Balco has claimed that the restructuring of capital would make the company's fundamentals stronger and help in fetching a better price for its shares at the time of disinvestment.

The disinvestment commission, which recommended sale of 74 per cent of the government stake in Balco, had also suggested capital restructuring by converting at least 25 per cent of equity into long-term debt taking into account the degree of over capitalisation in the company and its extremely low gearing.

 

Though the original restructuring proposal was given to the ministry three years back, the company has again revived it in view of the recent cabinet decision to go ahead with disinvestment in Balco.

Sources said SBI capital markets have prepared the restructuring scheme and has suggested converting equity into long term debt with a coupon rate of 8.5 per cent.

Bharat Aluminium Company's current equity is Rs 488.85 crore against which its total loan is Rs 51.86 crore as on march 1997 with a debt equity ratio of 0.10.

With the restructuring the company's debt equity ratio would improve to 1.21.

The current earning per share (EPS) of Balco at Rs 1.26 would double to Rs 2.52 after the restructuring, while the book value per share would increase from Rs 16.24 to Rs 22.92, company sources said.

Meanwhile, the government has already set in motion the process of selecting a global advisor for disinvestment by inviting bids.

Balco is the second aluminium public sector to suggest restructuring of capital. National aluminium company, the largest aluminium company in the country with equity capital of Rs 1288 crore, has also sought restructuring by converting 50 per cent of its equity into debt.