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Our Bureau

Mumbai, Oct. 13 Given the turbulent market conditions, Hindalco Industries may have received a lukewarm response from retail and institutional investors for its rights issue with over 25 per cent of the issue set to devolve on the five underwriters.

The company, which closed subscription for the Rs 5,047-crore issue on Friday, is waiting for details from the registrar and will announce early this week, said a company official.

“Timing of the issue turned out to be bad as both retail investors and institutional investors stayed away with the markets struggling for liquidity. As per our estimates, the issue would have subscribed by about 70 to 75 per cent,” said the source.

Foreign and domestic financial institutions might have stayed away from the issue as the stock price in the exchanges has fallen much below the issue price.

On Monday, the company closed at Rs 88.75, a gain of 10 per cent over Friday’s close, but still lower than the rights offer of Rs 96. Over the month, the shares have lost 26.68 per cent. On Friday, the stock registered its 52-week low of Rs 78 on the BSE. Domestic institutions, including Life Insurance Corporation and General Insurance Corporation, hold 11.13 per cent and foreign institutional investors have 12.22 per cent in the company.

“It does not make much sense for the institutions to subscribe for the rights issue. The stock price on the exchange will be under downward pressure for at least six months as some of the underwriters may offload shares in the market,” said an analyst.

The five underwriters — ABN Amro, Citigroup, Deutsche Bank, DSP Merrill Lynch and SBI Capital Markets — had offered to buy 4,20,64,192 shares each (8 per cent of the offered shares) at Rs 96 a share, which translates to over Rs 2,019 crore investment.

According to norms, the total subscription by the promoter and promoter group (including its rights entitlement) should not exceed 50 per cent of the issue size.

In the event the company does not receive minimum subscription of 90 per cent of the issue, the underwriters should purchase or procure purchasers to the extent of such un-subscription in accordance with the terms of the underwriting agreement.

Hindalco plans to utilise the fund to partly repay a $3 billion bridge loan availed for the acquisition of Canada’s Novelis in February 2007.

The company had to change the ratio to three rights shares for every seven held in August from a 1:3 offer announced earlier after a stock slide soured pricing expectations.

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

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