Mumbai: Hindalco Industries Ltd, the flagship firm of the Aditya Birla Group, has revived plans to raise funds by selling shares to institutional investors.
Hindalco will go ahead with a so-called qualified institutional placement (QIP) issue to raise Rs.3,000 crore by January, two bankers directly involved with the transaction said on condition of anonymity.
“The company had earlier pushed back its plans to raise money due to poor market sentiment when the Supreme Court had cancelled its coal blocks. But it has now decided to launch the QIP in December or January after the coal linkage issue is resolved. They are looking to raise Rs.3,000 crore in the first phase,” said one of the bankers.
A spokesperson for Hindalco Industries declined to comment.
On 18 July, Hindalco had informed the stock exchanges that it would raise up to Rs.5,000 crore. The second largest aluminium maker in the country hired Bank of America Corp., Citigroup Inc., Deutsche Bank AG, HSBC Holdings Plc, JM Financial Ltd, Kotak Mahindra Capital Co. Ltd, Morgan Stanley, Standard Chartered Plc and SBI Capital Markets Ltd for the share sale, Bloomberg reported on 9 September.
However, the plans were put on hold after the Supreme Court cancelled 214 coal field allocations, deeming them illegal. As part of this order, five coal mines allocated to Hindalco were also cancelled. The Supreme Court imposed a one-time levy on the companies whose blocks had been cancelled. Hindalco, in a statement to the stock exchanges on 25 September, said the fee would mean a one-time hit of around Rs.500 crore.
Since then, however, the uncertainty around the sector has receded, partially because the government said the cancelled coal mines will be put up for auction over the next three months.
“The company will have further clarity on coal linkages by the time QIP is launched,” said the second banker quoted above, adding the funds will be used to ramp up its capacity.
The QIP issue from Hindalco Industries would be the largest since infrastructure lender IDFC Ltd raised Rs.1,000 crore on 10 September. QIPs have picked up in the weeks after the National Democratic Alliance (NDA) government came to power in May. So far this year, Rs.28,702 crore has been raised by Indian companies through the QIP route, according to data from Capitaline.
However, such share sales have slowed in recent months. Since September, companies and investment banks have delayed their share sale launches citing poor investment sentiment. Infrastructure firms such as Hindustan Construction Co. Ltd, IL&FS Transportation Networks Ltd and GVK Power and Infrastructure Ltd are in a wait-and-watch mode before they launch QIPs, Mint reported on 30 September.
“After the new government was formed, there was a lot of enthusiasm; but, of late, the QIP flow has been subdued. The sentiment is not strong right now, but it might happen that markets may revive especially because mutual funds have started to see flows,” said Dhananjay Sinha, head of research, institutional equities, at Emkay Global Financial Services, a brokerage.
Concerns have also been raised about the poor performance of firms that raised funds via QIP issues earlier this year. Shares of firms such as Reliance Communications Ltd, Jaiprakash Associates Ltd and GMR Infrastructure Ltd have traded below the price at which the shares were issued to institutional investors.
“A lot of homework is being done by bankers and companies to launch QIPs and we believe a huge round of fund-raising will happen in the next few months. These days, bankers are ensuring that they have buyers in place before announcing their issuances as initially there was a surge in equity issuances; but, going ahead, people have to be careful as prices of most of the shares had fallen substantially,” said Dara J. Kalyaniwala, vice-president of investment banking at Prabhudas Liladher Capital Markets Pvt. Ltd.