The Hindu : Business : India Cements to raise Rs. 655 crores to retire high cost debt

Online edition of India's National Newspaper
Saturday, Dec 25, 2004

Business

Business

India Cements to raise Rs. 655 crores to retire high cost debt

By K. T. Jagannathan

CHENNAI, DEC. 25. India Cements Ltd. (ICL) will raise $149 million (Rs. 655 crores) by placing a combination of debt and equity-related instruments on an infrastructure fund managed by Asia Debt Management Hong Kong Ltd. through its FII (foreign institutional investor) accounts.

The board of directors, which met here today, approved the fund-raising proposal.

The fund-raising exercise will have a debt component of $92 million (Rs. 405 crores). The equity portion will be $57 million (Rs. 250 crores).

India Cements proposes to raise $117 million (Rs. 515 crores) by issuing secured debentures. The debenture issue will have an optional convertible portion worth $25 million (Rs. 110 crores). Each debenture can be converted into a fully paid equity shares of Rs. 10 each at a premium at the end of 18 months from the date of allotment, if a debenture-holder wishes. The company has fixed a ceiling on the conversion price at Rs. 125 a share or the price determined in accordance with the guidelines of Securities and Exchange Board of India.

The company is also planning to raise $32 million (Rs. 139 crores) by issuing 29.60 million equity warrants with an option to the holders to convert each of them into one fully paid equity share of Rs. 10 each at a price of Rs. 47 (including the premium) at any time inside 18 months from the date of issue.

Should a debenture-holder opt to convert the optional portion into equity at the end of 18 months, this will increase the paid-up capital by Rs. 8.80 crores.

If warrant-holders opt for conversion into equity, this will drive the paid-up capital by Rs. 29.60 crores. Theoretically, the paid-up capital of ICL can go up to Rs. 177.95 crores from the current level of Rs. 139.55 crores.

According to N. Srinivasan, Managing Director of ICL, the funds raised will be fully used to repay some high cost debts. The number of lenders, too, will get reduced, in the bargain. The company has a total outstanding debt of around Rs. 1,800 crores. The average cost of the debt is 9.5-10 per cent. In the latest fund-raising exercise, the debenture-holders will be paid the interest at the time of servicing their principal. ICL, it is learnt, will get the debt with flexible repayment option and interest rate. As it is paying interest only at the time of serving the principal, sources say, the company's cash flow position will ease considerably.

The company has convened an extraordinary general body meeting of the shareholders on January 17 to consider the issuance of convertible debentures and warrants.

Asked on the status of the promoters' holding in the company after the latest fund-raising proposal, Mr. Srinivasan said, "It will go down. But it will not go down to any significant level." The promoters hold 45 per cent stake in the company. Mr. Srinivasan asserted that the operational turnaround had already started happening in the company. "Now the first phase of financial turnaround is happening," he added. The latest exercise in fund-raising, it is stated, will trigger a positive fall-out on the company's ability to restructure its remaining debt. Indications are that the company will look around to access cheaper funds.

The company had been through a tough time for the last few years. Takeover-caused debt rise and market-induced problems had pushed the company on loss course. India Cements got CDR (corporate debt restructure) package approved sometime in January 2003. Yet, the market dynamics ensured that it slipped in its targets post-CDR package. "I am pleased about this today (raising funds). Anybody else would have gone down. We have managed to survive without loss of assets," Mr. Srinivasan said.

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