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Friday, Feb 22, 2002

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ADR issue to follow domestic offer for Nalco divestment

P. Manoj

NEW DELHI, Feb. 21

THE Union Government is firming up its plan for disinvestment in National Aluminium Company Ltd (Nalco) through a proposed 30 per cent public offer of its equity.

The strategy is to go in for a domestic offering first, which will be in the range of 5-10 per cent of the Government's equity. This will be followed by an American depository receipts (ADR) issue of about 20-25 per cent of the Government's equity in Nalco, Government sources said.

The domestic offering will take about two months while the ADR offering will take a minimum of six months.

The third phase of the disinvestment plan will comprise a strategic sale of up to 26 per cent of the Government's equity to a strategic partner along with transfer of management control.

With the sequencing of the public offer, type of instrument and quantum of equity to be offered in domestic and ADR issues finally in place, the stage is set for hiring a global advisor to assist the Government in carrying out the process.

"The Government will shortly appoint a global advisor who will be common to all the three phases," the sources said.

The Government is veering around to an ADR offering because of the advantages this instrument enjoys over a GDR issue.

Sources said, "though an ADR issue is twice as expensive as a GDR offer, it provides more depth by virtue of getting the company's scrip listed on the New York Stock Exchange where there are lot of retail investors," whereas GDRs mostly comprise institutional investors.

Besides, if the company were to need money for major expansion in future, ADR offering would be a much better instrument, the sources said.

The Cabinet Committee on Disinvestment (CCD) had cleared a 30 per cent public offer plan in Nalco last year comprising an ADR/GDR issue and a domestic offering.

Though Nalco's shares have moved up on the bourses since then, the Government feels that the company's stock is worth much more than the price at which it is traded now.

During the ADR offering, the Government is likely to place a stipulation that a major aluminium company cannot corner most of the equity on offer. This is to avoid a situation where a global major and competitor to French Al Pechiney could grab a big chunk of Nalco's equity.

Al Pechiney currently has a working relationship with Nalco, supplying technology for alumina and aluminium production for the on-going expansion plans worth about Rs 4,000 crore.

But, if the ADR offering doesn't do well, the Government will have to take a decision on whether to go ahead with the ADR offering by allowing the aluminium major to take up a large part of the equity on offer or scrap it altogether and go for a strategic sale straight away, the sources said.

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