• Investment World
• eWorld
• Brand Line
• Mentor
• Life
• Brand Quest
• The New Manager

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Cross Currency

• Rates
  
  

Shipping

• Ports
  
  

Archives

• Yesterday
• Datewise
• Resources
• In Focus
• In Depth
• Events 2007

Group Sites

• The Hindu
• The Hindu ePaper
• Business Line
• Business Line ePaper
• Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

BL Research Bureau

Indian Hotels has revised the terms of the NCD (non-convertible debenture) portion of its ongoing rights offer. The company was offering one 6 per cent NCD of Rs 100 (redeemable at par at the end of three years) each along with a detachable warrant for every 10 shares held by an investor.

According to the original terms of the issue, the warrants could be converted to equity shares at an exercise price of Rs 150 during the exercise period from September 1, 2008 to September 30, 2008.

According to the revised terms, the warrant exercise period has been changed to September 1, 2009 to September 30, 2009. The rights offer has been extended to April 24, 2008 from April 15 in light of the revision in terms.

The six-per cent interest on the debentures is unattractive compared to prevailing three-year deposit interest rates. Therefore, the potential gain from converting warrants to equity is clearly the sweetener for this offer.

The exercise price of Rs 150 is, however, at a 35 per cent premium to the current market price. Therefore, for the original offer to be attractive to investors, the stock should have appreciated over and above this 35 per cent and that too, within the next 4-5 months.

The revised terms of the offer now allow investors a longer window of about 18 months to exercise the option and thus allow a longer horizon for the stock to deliver. However, investors may be better off not subscribing to the NCD portion of the offer. The opportunity cost remains high, as the interest rate on offer is lower than prevailing market rates and there is no guarantee that the stock will appreciate to Rs 150 levels by September 2009.

Concerns of oversupply in rooms may continue to weigh down on valuations of hotel stocks in the near-term. Investors may stick to subscribing to the equity portion of the offer, using the discount to reduce their overall cost of acquisition.

More Stories on : Rights Issue | Hotels

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Corporate developments

Copyright © 2008, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line