Hindalco raises US$550 million via India’s first ever QIP in metal sector

India’s leading aluminium producer Hindalco Industries Ltd raised US$550 million over the last weekend through a major stock offering launched on Friday, March 3. The qualified institutional placement (QIP), the country’s first ever metal sector share sale using the vehicle, saw noted foreign investors such as Goldman Sachs AMC, East Spring, Jardine Fleming Asset Management (JFAM), Fidelity, Halbis, Blackrock, and Bajaj Allianz participating in the offering. The offering also bought in to the QIP prominent mutual funds from India, namely HDFC Mutual Fund, Tata Mutual Fund, SBI Mutual Fund, and Birla Mutual Fund.

Floor price for the QIP was set at INR 184.45 per share.

According to the term sheet of the QIP offer, the money raised will be used for business purposes such as meeting working capital requirements, repayment of debt, exploring acquisition opportunities and general corporate purposes.

The vertically integrated aluminium producer has been looking to raise equity capital for a long time now. It had last attempted to raise equity capital through a QIP in November 2014, and had also appointed investment banks for the same. However, prolonged downturn in the global commodity market had hurt the sentiment for the sector resulting in Hindalco not going ahead with its plans.

This time Hindalco’s plans follow the refinancing of debt at its group company Novelis Inc. A global manufacturer of rolled aluminium products and the world’s largest aluminium recycler, Novelis raised US$1.15 billion through a bond issuance in the U.S. to retire debt obligations maturing in 2017.

For the current fiscal year, Hindalco Novelis’ focus remains on expanding its automotive sheets proportion in the overall portfolio. For this, the rolled product manufacturer has undertaken projects with Jaguar Land Rover’s REAL car, Recycle Aluminium Car project, which will enhance the sustainability objectives of the customer. Further, the company remains focused to provide global solutions through various plant locations while reducing cost through improvement in productivity, asset utilization and better metal mix.

In third quarter of 2016-2017, Hindalco reported a net profit of INR 320 crore on strong EBITDA recovering from a loss in the year-ago period. As of 31^st December 2016, the company has consolidated debt, including that Novelis Inc, of INR 67,248 crore spread over five years.

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Back in India, Hindalco has recently announced plans to invest INR 500-700 crore on de-bottlenecking its Utkal alumina refinery project in Odisha's Rayagada district. The de-bottlenecking is expected to be done in 18 months. The aluminium maker has applied for clearances to scale up the refinery capacity from 1.5 million tonne per annum (mtpa) now to 2.25 mtpa. The raised fund would expectedly put the de-bottlenecking programme on the fast track.

Utkal Alumina International, a 100 per cent subsidiary of Hindalco Industries, increased production by eight per cent year-on-year to reach 393,000 tonne in the December quarter. The refinery is currently running at its full capacity and has strengthened its position as one of the lowest cost refineries of the world.

As per reliable industry sources, Hindalco Industries is also planning to invest INR 1,000 crore in downstream expansion to increase contribution of aluminium and other base metal value added products in its overall sales. The QIP could be a well-strategised move toward that direction, opine market watchers.