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Our Bureau

Kolkata, Aug. 13

Market speculated about how much discount to the six-month average price would be allowed by Hindalco Industries for its rights issue. The average price of Hindalco, which would decide its rights issue price on Thursday, in the past six months of trading stands at Rs 170.

In 2005, when the company last issued rights share, it gave a deep discount to the average price in the prior six-month of Rs 130. The rights were priced at Rs 96. The ratio was then 1:4.

This time it is 1:3 — one right of Rs 1 each for every three equity shares of Re 1 each held by the shareholder. In June 2008, Hindalco Industries’ board approved raising up to Rs 5,000 crore by way of a rights issue to redeem a bridge loan it had taken for acquisition of Novelis Inc. The share ratio was mentioned then. In February 2007, the company entered into a definitive agreement to acquire Novelis in an all-cash transaction for a consideration of $6 billion.

According to market sources, the discount this time would determine acceptance among the investors.

Ms Vshundhara Karwa, Metals Analyst of Microsec, felt that be between Rs 115 and Rs 120. “We do not feel the discount needs to be very steep this time as the weakness in alumina and aluminium as also copper is short-term,” she said.

According to banking sources, however, Hindalco could price the rights offering at less than Rs 100 a share, lower than the original plan, and make up the shortfall by changing the ratio to three rights for every seven held from 1:3 proposed earlier.

Hindalco Industries is India’s largest aluminium producer and is engaged in producing aluminium and semi-fabricated products. According to BNP Paribas, globally alumina surplus is to increase going forward, which will exert a downward pressure on alumina prices. However, high cost of production will provide a floor of $350-380/tonne to alumina prices.

The strengthening of dollar in the recent weeks have been a dampener for commodities. “In any case, the dilution of equity is a negative factor in this market, which would call for a significant discount to the market price,” said an equity strategist of a global fund.

More Stories on : Rights Issue | Aluminium | Hindalco Industries Ltd

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