The Hindu Business Line : Indian Hotels mops up $150 m via foreign currency bonds

SENIOR officials of the Indian Hotels Company Ltd (IHCL) on Wednesday reported successfully raising $150 million through a foreign currency convertible bonds (FCCB) issue, at rates argued to be a recent best in Asia.

The corpus created will help IHCL respond quickly to growth opportunities here and abroad. The company, which averages Rs 60-70 crore per annum on domestic modernisation expenditure, has been trying to expand internationally through the acquisition route. Two bids in the latter regard were reported earlier to have failed.

Tuesday's offering, composed of a main issue of $135 million and a green-shoe option of $15 million, was oversubscribed more than 20 times, total response pegged at roughly $3 billion. ``It is a vote of confidence for brand India,'' Mr Raymond N. Bickson, Managing Director, IHCL, said at a press briefing.

``The bonds are convertible into either ordinary shares or GDSs of the company, at the option of the bondholders, at a conversion price of approximately Rs 502 per share which is at a 19 per cent premium to the company's closing share price of Rs 421 on Tuesday on the BSE.

``The bonds carry a coupon rate of one per cent at a yield to maturity of 3.15 per cent per annum at the end of five years if not converted into ordinary shares or GRSs during the period,'' IHCL's official statement said. According to Mr Zubin Dubash, Executive Director, IHCL, the yield to maturity compares with that of ``five year-treasuries.'' The investors were 45 per cent from Europe and 30 per cent from Asia, the rest from elsewhere.

``This is by far the most successful issue we have done in the Tata Group,'' he said. The bonds are expected to be listed on the London Stock Exchange, where IHCL's GDRs are listed at present. The GDSs are expected to be issued on February 11.

Mr Dubash attributed the issue's success to timing. There was the upgrade by Moody's, Indian bourses have been looking up and US interest rates are currently low. But on the other hand there are a lot of issues in the pipeline and the Federal Reserve's Chairman, has cautioned on the interest rate outlook. This made timing critical, IHCL becoming the first company to take advantage of the RBI's latest ECB/FCCB guidelines.

Citigroup, Merrill Lynch and Morgan Stanley were joint book runners for the issue.

Mr Dubash explained that with the funds in place, IHCL can be ``aggressive'' in any property bid of the future. The concept of sliver equity which IHCL has often cited for prospective acquisitions, kicks in as the product of a post-purchase divestment. Thus it makes sense, to have some of the required funds upfront.

Together with this FCCB issue, IHCL's debt raised so far this fiscal, touches Rs 800 crore. However, officials emphasised that the FCCB amount, given its slated conversion at a later date, should not be treated as debt. Particularly since the option price is also high, enhancing the chances of conversion.

If the bonds were converted 100 per cent, equity dilution would be 30 per cent roughly, Mr Dubash said.

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