Having entered the final lap in its acquisition of Atlanta-based Novelis, the Aditya Birla group has tied up the loose ends to finance the $6-billion buyout. The deal will catapult the group flagship, Hindalco, to the league of the world’s top five integrated aluminium players.
According to sources, the $6-billion financing is being broken into two parts — $3.1 billion of full-recourse financing and $2.4 billion of leveraged buyout financing. Hindalco is currently taking a bridge loan of $3.1 billion from banks, at a rate of Libor plus 60 basis points as its recourse financing. Hindalco is providing a guarantee for the loan.
Typically, a bridge loan is a short-term loan that is used until a company secures a long-term financing and allows companies to meet its current obligations. This gives the company more time to decide on a long-term structure. In a full-recourse financing, the acquirer and its parent will have to meet the obligations, if there are problems in servicing the loan.
At a special meeting on May 10, about 99.8% of Novelis shareholders approved the acquisition of the company by Hindalco. The Birlas now have to get the final court approval under the Canadian law before Novelis comes under the Indian fold. Novelis was spun off from Canadian aluminium giant Alcan in 2005, and hence is regulated by the Canadian laws. Hindalco expects to get the final court approval under the Canadian law by May 14.
Hindalco executives and their bankers are working furiously to complete the funding schedule that will enable the Birlas to reach their target of becoming the world’s largest producer of flat-rolled products with customers such as Coke and carmaker Audi, who have been with Novelis since long.
The company is also expected to pay off the bridge loan with a rights issue. The deal is being syndicated by UBS, BankAm and ABN Amro. According to bankers, BankAm and ABN Amro have contributed to around 45% each. The loan is being syndicated down to a host of other foreign and Indian banks also. The leveraged buyout (LBO) is being done at Libor plus around 190 bps, with the LBO being syndicated by UBS and ABN Amro.
Hindalco is setting up three special purpose vehicles — two based out of Canada and one in the Netherlands. The LBO financing will use Canada-based SPV, while the full-recourse financing will use the other two SPVs, said banking sources. The deal values Novelis at eight times its operating profit.
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