hindalco rights issue: india’s largest rights issue fiasco
DESCRIPTION
HINDALCO RIGHTS ISSUE: INDIA’S LARGEST RIGHTS ISSUE FIASCOTRANSCRIPT
H I NDALCO RIG H TS I SSUE: INDI A’ S LARG EST RI G H TS ISSUE FIASCO
Presented By: Anshul GuptaChinay KhandelwalSaurabh SanchetiSneha DamaniSukriti NamaShuchi AryaVishal Singh
Introduction
On Feb. 11th 2007, Hindalco announced acquisition of Novelis. Part of inorganic growth of strategy. Completed this acquisition through its wholly-owned subsidiary
AV Minerals. Novelis will operate as a subsidiary.
Hindalco
The Hindustan Aluminum Corporation Limited was established in 1958 by the Aditya Birla Group.
In 1962 the company began production in Renukoot (Uttar Pradesh).
In 1989 the company was restructured and renamed Hindalco. One of the world's largest aluminium rolling company and one
of the biggest producers of primary aluminium in Asia. Hindalco is listed on the 2011 Forbes Global 2000 at the
position 643.
Novelis
The Novelis company was spun-off from Canadian mining and aluminium manufacturer, Alcan Inc. and incorporated in 2005.
It is the world’s largest producer of rolled aluminium sheet. The company serves customers in sectors including beverage
cans, automotive, consumer electronics, construction, foil and packaging.
The company is No. 1 rolled products producer in Europe, South America and Asia, and No. 2 in North America.
Acquisition of Novelis Novelis suffered huge debt of $2.9 billion. By the end of 2006, it
suffered net loss of $275 million. Feb 11th 2007, Hindalco announced that it is going to acquire
Novelis for heavy deal of 6 Billion. Mostly thought Hindalco is overpaying.. Internal accrual & bridge loan of $3.03 billion, it was financed
by ABN Amro, Bank of America & UBS. The debt part of Novelis was refinanced by Hindalco. After a year, Hindalco planned to take $1 billion loan from
Syndicate of Banks.
Issue Details
To close the bridge financing Hindalco informed BSE on June 13th 2008, that its board was coming up with rights issue as part of its comprehensive financing for the acquisition of Novelis.
Aug. 14th 2008, Hindalco went for rights issue of about 52,58,02,403 equity shares, with a face value of ₹1 at a premium of 95 per equity share and the period long till Oct. 10th 2008.
Since the date of rights issue announcement, the stock prise of the company decreased by 22.58% on BSE from ₹175.50 to ₹135.80 on Aug. 14th 2008.
This meant that the company would issue 3 rights share for every existing 7 equity shares, in place of 3 shares.
Issue Details Cont...
The company expected to raise ₹49.26 billion of net proceeds after deducting ₹of 1.22 billion issue expenses from the gross proceeds ₹50.48 billion.
The promoter and promoter group had announced that they intend to subscribe to the full extent to their entitlement i.e. 31.42% of the issue size.
Performance of Hindalco Stock
Issue Details Cont...
Hindalco entered an underwriting agreement with 5 lead managers on Sep. 12th 2008, as per which if the company does not receive min. Subscription of 90% of the issue then underwriters will purchase or procure purchasers to the extent of such under subscription.
Promoters plan to subscribe for nearly 50% of the issue against the entitlement of 31.42% of the issue.
Analysts stated that the average price of the company during the last 52 weeks was ₹140 per share, & it was a good opportunity for the investors to increase their return.
Conclusion
What actually happened: Around 59.97% of issues was unsubscribed. Many shareholders did not turn up and the company’s share price fall
drastically. The stock price of Hindalco was highly volatile and it was reflecting the
goodwill collapse of sensex. Post right issue:
The right issue was expected to rise around Rs. 50.48 billion, had witnessed only 55.97% subscription of total issue that comes around to 473.3 million shares.
Thank You