Hindalco promoters forgo conversion of warrants

With the stock market touching new lows as a result of the global financial turmoil, the promoters of Aditya Birla Group firm Hindalco, India’s largest aluminium manufacturer, are unlikely to convert 80 million preferential warrants issued to them in April 2007 but will subscribe instead to additional shares in the company’s current rights issue. The preferential warrants were convertible at Rs 173.87 per share against the rights issue price of Rs 96. “The promoters will subscribe to additional shares in the ongoing rights issue because it will be much cheaper than converting the warrants,” confirmed sources close to the group. Hindalco’s share is trading at Rs 96-97. The last date for the conversion of warrants is October 10, which is also the closing date of the rights issue. The promoters, who hold 31.4 per cent of the company’s equity, have guaranteed to subscribe to 50 per cent of the rights issue. This means that the promoters would subscribe to a minimum of 262.90 million shares, 92 million more than their entitlement of 170.51 million shares. For these additional shares, the promoters need to pay roughly Rs 874 crore, which would also increase their holding to 37 per cent. If they had opted for a full conversion of the warrants, the promoters would have paid a residual amount of Rs 1,252 crore (they had paid 10 per cent upfront) to increase their stake 4.56 percentage points. Speaking on behalf of the company, a senior official of an investment bank advising the rights issue, said: “It is logical to subscribe to additional shares in the rights issue, which is priced at Rs 96 rather than converting the warrants in which the residual amount is much more than the price of right issue.” ---by business standard