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Billionaire Kumar Birla to Raise Stake in Hindalco

March 02, 2007

Billionaire Kumar Mangalam Birla plans to raise his stake in Hindalco Industries Ltd. (HNDL), India's biggest aluminum maker, to remain majority shareholder as the company prepares to buy Novelis Inc. for $6 billion.

Hindalco plans to sell to Birla 67.5 million shares and 80 million warrants for as much as 26 billion rupees ($588 million), or 178 rupees a share, Mumbai-based company said today. Birla's stake will increase to 34 percent from 26.79 percent.

Hindalco last month agreed to buy Novelis to gain access to U.S. customers including General Motors Corp. and Coca-Cola Co. The company's shares are the worst-performers on the benchmark Sensitive index the past month on concern the acquisition, to be funded by $2.8 billion of debt, may stretch its finances.

``Investors will view this as promoters betting their money on the decision'' to buy Novelis, said Arvind Desai, the head of research at Mumbai-based Niche Brokerage Pvt. ``Founders raising their stake may be positive news for the stock.''

Shares of Hindalco rose 0.5 percent to 137.85 rupees at the close of trading on the Bombay Stock Exchange. The stock slumped 21 percent last month, the most since May 2006.

Hindalco will seek approval from shareholders on March 28. Each warrant will be converted into one share, the company said.

The company hired ABN Amro Holding NV and UBS AG to borrow $2.4 billion to fund its leveraged buyout of Novelis, Pragnya Ram, company spokeswoman said Feb. 15. Hindalco's total debt will increase to $5.2 billion after the acquisition, according to a statement by Fitch Ratings.

`Adverse Impact'

Crisil Ltd., an Indian unit of Standard & Poor's, put its long-term rating of AAA/Stable on ``rating watch with negative implications,'' while reaffirming the short-term grade of P1+ on short-term debt. Standard & Poor's and Moody's Investors Service don't rate Hindalco's debt.

``The proposed acquisition cost is significantly larger than the company's net worth of about 95 billion rupees'' as of March 31, 2006, Crisil said Feb. 12. ``Hindalco is proposing to fund this acquisition primarily through debt which will have an adverse impact on the capital structure of the company.''

The acquisition of Novelis is the second-largest overseas takeover by an Indian company, after Tata Steel Ltd. agreed to buy Corus Group Plc, the U.K.'s top steelmaker, for $12 billion in January to become the world's fifth-biggest steelmaker.

To contact the reporters on this story: Debarati Roy in Mumbai at

To contact the editor responsible for this story: James Poole at

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