Hindalco Revives QIP Plan, Looks to Raise ₹ 3,500 cr
FUND TRAIL Co had postponed its fund-raising plans in mid-2014 due weak market sentiment
Jwalit Vyas & Arijit Barman
Mumbai: Nearly two-and-half years after an aborted attempt, Aditya Birla Group’s Hindalco is kicking off its fund raising plans once again, by selling shares to institutional investors.
Hindalco has planned a qualified institutional placement (QIP) issue to raise ₹ 3,500 crore, people aware of the transaction said on condition of anonymity. The global investor road shows are set to kick off from next week. This would be the first high profile issuance of the year. The company in July-August 2014, had postponed its capital raising plans at the last minute due to poor market sentiments following the Supreme Court cancellation of its coal blocks and the downturn in the commodity cycle. With demand resurging to support prices, the company has decided it is an opportune time to revisit those plans. The Hindalco share has trebled in the last one year and is up 21.4% in the last 4 months to close on Friday at ₹ 183.4 per share.
Bank of America Merrill Lynch, Citi, JM Financial, Axis and SBI Caps have been mandated for the share sale.
An Aditya Birla spokesperson declined to comment on what he called market speculation.
The funds will be raised predominantly to deleverage the balance sheet of the company. "Hindalco's share prices have risen sharply over the past few months due to strong aluminium prices. The company is taking advantage of the high valuations that it is getting right now to rightly deleverage its balance sheet," said Rakesh Arora, MD, GoIndia Advisors.
On a consolidated basis its net debt is now at ₹ 55,500 crore. The Indian operations have ₹ 32,000 crore of debt on an EBITDA of around ₹ 5,416 crore in the last year. “Our focus would be to bring down our debt-to-EBIDTA to less than 3,” Hindalco MD Satish Pai had told ET earlier this week. “We also have the board approval to raise equity of up to ₹ 5,000 crore, but we would be raising much less than that," he said.
On deleveraging front, the company so far in FY17, has pre-paid ₹ 1,000 crore of debt and expects to pre-pay ₹ 1,400 crore in FY17 and ₹ 2,500 crore the following fiscal. The management has gone on record its intent to limit Debt/EBITDA below 3.0x from 4.5x currently. Last August, Hindalco’s Novelis unit raised $1.1 billion through a bond issuance in US to refinance its debt.
Analysts tracking the sector feel the timely ramp-up of Hindalco’s new capacity addition projects at Mahan, Aditya & Utkal along with approximately 75% coal security achieved by the company by way of linkages and auctioned mines has placed the company favorably to benefit from any recovery in aluminium prices. The domestic copper business too continues to gain from steady margins and high by-product prices. On the back of the growing trend of global auto majors switching to light-weight aluminium from steel to meet stricter emission norms and fuel efficiency, Novelis is also on course to achieve its $1 billion EBITDA target.
A must-do for several capital intensive sectors like banks, telecom, real estate, infrastructure during the 2014-15 vintage, fund raising through the so called QIP route, had dramatically shrunk in recent times with 2016 seeing the lowest amount raised in 5 years with less than ₹ 4,500 crore raised, as per data available. This is in sharp contrast to ₹ 31,684 crore and ₹ 19,065 crore that was was raised through QIPs in 2014 and 2015 respectively, data from primary market tracker Prime Database shows.