Hindalco said to refinance INR 14,700 crore of loans

Hindalco Industries Ltd, the Indian aluminium producer backed by billionaire Kumar Mangalam Birla, refinanced about INR14,700 crore ($2.2 billion) of debt. Shares extended gains. The Mumbai-based company got the average maturity of its local-currency project loans extended by 10 years, two of the people said, asking not to be identified as the details are private. Under the revamp deal, the metal maker needs to pay 6% of its debt in the first five years, versus 35% originally, one of them said.

Hindalco, whose debt more than doubled to INR 29,000 crore in the four years through March, is battling mounting costs amid a slump in aluminium prices. Interest costs surged fourfold in the two years through June while the light-weight metal has declined 21% on the London Metal Exchange in the past 12 months.

“At current aluminium prices, no producer would be in a position to repay their loan,” said Giriraj Daga, a portfolio manager at SKS Capital and Research Pvt. in Mumbai. “Given the current market scenario, this will help the company save money.”

The debt restructuring by Hindalco is as per central bank guidelines announced in August, 2014, which make it easier for industrial firms to extend the tenor of project loans, the people said. The norms require new lenders to take over at least 25% of the outstanding loan amount.

Axis Bank Ltd has taken 25% of the debt from the original lender State Bank of India, two people said, while the rest stays with the latter.

The refinanced loan includes about INR 9,900 crore borrowed to fund a smelter in Odisha owned by Hindalco’s Aditya Aluminium unit, according to two of the people. The rest was borrowed to build a refinery under its Utkal Alumina International Ltd subsidiary, one person said. Both began commercial production in the year ended March 2014.