Hindalco QIP increased to $600 million

The Indian aluminium producer increases the fixed-price deal from $350 million after strong demand from foreign investors.

Hindalco Industries, India's largest aluminium producer and also one of the leading producers of copper, has raised $600 million from a qualified institutional placement that was upsized by more than 70% following strong demand from foreign investors in particular. The company said it will use the money to fund various aluminium projects and for the acquisition of new assets.   

Hindalco launched the placement late on Monday night at a base size of $350 million, but with the option to sell a further $250 million worth of shares in case of demand. When the books closed yesterday morning, it had received about $700 million worth of orders and, according to sources, the high quality of the demand as well as the large proportion of long-only investors wanting a piece, prompted the bookrunners to use the upsize option in full. The enlarged size equals about 11.1% of Hindalco's existing share capital.

At $600 million, this is the largest overnight placement in India this year after Axis Bank's $720 million combined QIP and sale of global depositary receipts in September. However, India-based metals and mining company Sterlite Industries trumped both these deals with a $1.5 billion follow-on of US-listed American depositary shares in July.

One source said approximately 70% of the orders came from foreign institutional investors and another noted that many of the names in the order book were of the kind that banks would not want to turn away, leaving the seven bookrunners with a tough job allocating the deal. Being a QIP, the maximum number of investors, including sub-accounts, is 49 and talk last night suggested that the final number would end up very close to that.

The deal was launched at a fixed price of Rs130.90 per share, which was equal to the floor price and resulted in a discount of 1.7% versus Monday's closing price of Rs133.20. The discount was tight, but given the floor price restrictions that prevent a company from selling new shares below the average closing price for the past two weeks, investors are resigned to the fact that much wider discounts are something of a rarity -- at least for high-profile companies. In some cases the ability to buy shares in large sizes at a fixed price outweighs the thin discounts. Based on the average daily trading volume of Hindalco on the National Stock Exchange (10.4 million shares/day), the QIP accounts for about 20 trading days.

In mid-October, United Spirits raised $350 million from a QIP priced at a 0.9% discount and Axis Bank's record placement came at a discount of just 0.6% versus the latest market price, or 1.27% versus the volume-weighted average price on the day of the deal.

Hindalco's share price has more than tripled from its lows of Rs37.40 in March amid the recovery in commodity prices and gained another 1% yesterday after the placement to finish at Rs134.55 -- 4.9% below the 2009 high of Rs141.45 that it hit in October.

The company, which is a subsidiary of the Aditya Birla Group, is in the process of tripling its aluminium production capacity to 4.5 million tonnes by 2013, and is increasing its smelting capacity to about 1.7 million tonnes from close to 600 million tonnes.

Hindalco last raised funds in the equity capital markets in October last year when it sold $1 billion worth of new shares through a rights issue. That deal aroused limited interest from minority shareholders, however, after the share price in the market fell below the rights issue price. In the end, the offer was only about 56% covered with 50% bought by the controlling shareholders as per the underwriting agreement.

The QIP was arranged on a joint basis by no fewer than seven banks: Citi, Deutsche Bank, DSP Merrill Lynch, HSBC, Royal Bank of Scotland, SBI Capital Markets and UBS. Sources said Hindalco was keen to honour the relationships it has with these banks and noted that, aside from HSBC and UBS, all the others were also involved in the rights issue.  

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