Novelis to raise up to US$1.1 bln via bond issue

Rolled and recycled aluminium firm Novelis Inc. announced a bond issue yesterday intended to raise up to US$1.15 billion for refinancing debt.

Novelis initially intended to use the funds to repurchase US$500 million of US$1.1 billion worth of notes due next year, but subsequently amended the offering to include the entirety of the outstanding notes. The bonds, which bear an interest rate of 6.25% per annum and mature in seven years, fall under Rule 144A of the United States Securities Act, which means they will not be sold to individual domestic investors, only to qualified domestic institutions and foreign buyers. The funds raised by the bond issue are to be used to refinance bonds that are scheduled to mature in December of next year.

According to reports, the bonds are being issued at a time and in a manner intended to take advantage of Indian bonds in the international market. Indian debt instruments have come into vogue due to the turmoil surrounding the recent referendum in Great Britain in favor of leaving the European Union (“Brexit”).

A borrowing market offering zero interest rates, with central banks seeking ways to buoy economies that are in the doldrums, make Indian companies attractive investments as well. A full 75 per cent of bonds globally offer a yield of 2 per cent or less, and the United States Federal Reserve, the European Central Bank, and Bank of Japan are expected to continue holding interest rates at zero or close to it.

Novelis is a subsidiary of Mumbai’s Hindalco Industries Ltd., which is itself part of Indian multinational conglomerate Aditya Birla Group. Based in Atlanta, the firm accounts for almost half of Hindalco’s consolidated revenue.

The bond sale comes on the heels of Novelis’ first quarter FY2017 results, where the firm turned in a net income of US$24 million in the quarter and a net income of US$33 million, both of which represent significant year-on-year improvements.

As for Hindalco, the company’s shares hit a 52-week high last Monday. The firm’s stock has risen over fifty percent during the past year.

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