Tuesday, 20 December 2016

Birla group company Hindalco's Novelis unit to raise up to $1.1 billion via US bond sale

The base size of the issue is $550 million with an option to retain oversubscriptions. The seven-year bonds will be easily tradable.

MUMBAI: Days after Grasim & Aditya Birla Nuvo announced a $9-billion merger plan, Birla group company Hindalco's Novelis unit will launch a bond sale in the US to raise as much as $1.1 billion to refinance debt.

Morgan Stanley leads an investment banking group that includes Barclays, Bank of America Merrill Lynch, Citi, Deutsche and 
HSBC, said people with knowledge of the matter. The money will go toward refinancing bonds that mature in December 2017.

The base size of the issue is $550 million with an option to retain oversubscriptions. The seven-year bonds will come under Rule 144A of US security regulations that make them easily tradable. The aluminium maker is looking to take advantage of demand for Indian bond in global market.

Demand for debt instruments of Indian companies has gone up after the global bond market was roiled by Brexit and amid a climate of zero interest rates as central banks look to bolster faltering economies.

A Birla spokesperson said, "In line with group policy, we do not comment on market stories." There was no response to emails sent to US-based Novelis at noon on Sunday. Investment banks could not be immediately reached. If the company doesn't raise the full amount through dollar-denominated bonds, it may mop up the rest through external commercial borrowings or offshore loans. Novelis and Hindalco's Canadian arm are already in talks with some large global banks, which are likely to extend credit lines, said people cited above.

Indian borrowers are increasingly tapping the dollar bond market after Britons voted to exit the 
European Union, an event that sent bonds reeling. Three-fourths of global bonds yield now less than 2%, leaving investors with few avenues to put their money in. Global investors are factoring in zero interest rates from European Central Bank and Bank of Japan for a few more years and US Federal Reserve is likely to postpone the next rate increase to 2017, increasing lure of Indian bonds.

Hyderabad-based Greenko Group raised $500 million by selling bonds to overseas investors last week. In 2010, Novelis raised a little over a billion dollars via bonds denominated in that currency. Those seven-year, 8.375% bonds are now rated at speculative Ba2.

China's economic slowdown had seen aluminium prices slump, hitting their lowest since 2009 in November last year. Excess supply from China hit Indian producers badly but Novelis has managed to turn around its operations. "Europe and China currently utilise 50% of Novelis' capacity," Religare Institutional Research said in a May 28 note.

"Going forward, the company expects to increase utilisation levels by innovating and customising the product portfolio... By FY17-end, existing US capacity is expected to be utilised fully. The new auto line in North America is scheduled to be ramped up by FY17."

Kumar Mangalam Birla-led Hindalco Industries on Friday reported a near fivefold jump in standalone net profit for the quarter ended 30 June, helped by benign input costs and rise in aluminium production. In the June quarter, net profit rose to Rs 294.07 crore from Rs 61.10 crore in the year ago. Revenue missed estimates, falling 11.4% to Rs 7,597.3 crore due to a sharp decline in realisations.

Novelis, which contributes close to half of the Hindalco's consolidated revenue, reported an adjusted net profit of $33 million compared with $24 million a year ago.

Hindalco Industries 
shares jumped nearly 6% about a week ago, hitting a 52-week high of Rs 152.15 last Monday after Novelis added to investor confidence, reporting a 38% rise in net profit in the June quarter. In the past year, Hindalco stock has surged more than 52% beating the Sensex.