Hindalco announced a rights issue in 2008 to raise funds for its acquisition of Novelis. The largest aluminum company in India planned to raise approximately $1 billion (Rs. 49.26 billion) through the rights issue to pay down debt from the $6 billion Novelis purchase. However, the rights issue faced significant issues with subscription and Hindalco only raised around 55.97% of its target, reflecting the deteriorating market conditions. The undersubscription of the rights issue was Hindalco's largest such failure in India and highlighted problems integrating the Novelis acquisition.
ETHICAL LEADERSHIP: RATAN TATA AND INDIA’S TATA GROUP
HINDALCO RIGHTS ISSUE: INDIA’S LARGEST RIGHTS ISSUE FIASCO
1. HINDALCO RIGHTS ISSUE:
I N D I A’ S L A R G E S T R I G H T S I S S U E F I A S C O
Presented By: Anshul Gupta
Chinay Khandelwal
Saurabh Sancheti
Sneha Damani
Sukriti Nama
Shuchi Arya
Vishal Singh
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.
7. 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.
8.
9. 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.
10. 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.