The Hindu Business Line : Orient Paper juggles options for funds

Is it a toss-up between FCCB and rights issue for Orient Paper & Industries Ltd, a GP and CK Birla group outfit, which has decided to raise funds for some proposed capital expenditure in cement and paper businesses?

The company board will take a final call on October 5 on the options available for raising equity capital, including issue of shares on rights basis. The company has plans for Rs 210 crore fresh investments in power, cement and paper.

Though the management, for obvious reasons, is tight-lipped about the competing rationale for choices, close observers indicated that the emphasis on rights stems from the relatively low holding of the promoters in the company. Buyback of shares, through which another Birla family has hiked its holding in a group outfit, was one of the options considered earlier and rejected as it is a long-drawn process.

Promoters of Orient Paper have, of late, raised their stake marginally in the company through market purchases. But increasing their holding to 51 per cent level through market purchases is a time-consuming affair.

Promoters and persons acting in concert raised their combined holding to 30.79 per cent as on June 30, 2006 from 29.89 per cent as on March 31, 2006. Incidentally, as on March 31, 2005, the promoters' combined holding was placed at 30.10 per cent of the total equity.

A string of six private corporate bodies, controlled by the promoters, currently hold another 10.57 per cent. Holding of the institutional investors has, however, gone up to 26.98 per cent at the end of the June quarter from 25.70 per cent in quarter ending March 31.

Multiple aims

The argument in favour of rights issue found support as it matched two different aims at one go - raising funds as also hiking promoter holding. However, the issue of FCCBs can also serve several purposes at one stroke, according to analysts. "But it would allow the promoters to increase their stake," said an official in a large institutional brokerage.

Market observers feel FCCB issue may provide the additional advantage of mopping up hard currency for import of machineries to be installed for expansion projects.

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