Considering the fall of Hindalco Industries’ stock price and the turbulant market conditions, the five underwriters of the aluminium-maker’s Rs 5,047-crore rights issue will have to hold back the shares until the financial markets bounce back and make their deal profitable.

At Friday’s share price of Rs 80.65, analysts estimated that the underwriters — ABN Amro, Deutsche Equities, Citigroup Global Markets, DSP Merrill Lynch and SBI (along with SBI Capital Markets) — would face a shortfall of Rs 64.57 crore as their investment is higher than return.

After deducting the underwriters’ fee of Rs 60.57 crore, the hit would be little milder at around Rs 20.15 crore. Eventually, each underwriter, who subscribed 8 per cent of the issue at Rs 96 a share, would end up with a shortfall of Rs 4.03 crore after deducting the fee.

Each underwriter had offered to buy 4,20,64,192 shares (8 per cent of the offered shares) at Rs 96 a share, which traslates into Rs 403.82 crore investment. But the current share price of Rs 80.65, which is feared to fall further, could fetch only Rs 339.25 crore for each banker.

“Since the Hindalco stock is currently trading below the offer price of the rights issue, the five underwriters would now prefer to hold the shares till they appreciate. Going by the current market dynamics, it is difficult to say how long the metal sector stocks like Hindalco will take to go up to level of Rs 96, the price at which the rights issue was taken up,” said a Mumbai-based analyst.

Considering the present condition, it is yet to be discovered how the underwriters are going to fund their contribution for devolving the issue, particularly given the fact that the liquidity condition with

the banks is poor globally, and raising debt in such a condition is far more difficult than ever. Even if the underwriters borrow from banks, they would have to borrow at considerably high interest rates, which may not be advisable at the moment.

“As per our knowledge, the issue was subscribed at about 48 per cent till the closing date on Friday. So, the underwriters have to devolve 40 per cent of the issue size to acquire the minimum total subscription of 90 per cent to make the issue a success,” said a source close to the development.

In the rights issue of Hindalco, the five underwriters had jointly agreed to contribute about Rs 2,018.8 crore, a 40 per cent of the issue, to devolve it, while the promoters and the promoter group could subscribe to a maximum of about 50 per cent of the issue size.

As per the regulatory norms, the total subscription by the promoter and promoter group (including its rights entitlement) shall not exceed 50 per cent of the issue size. In the event the company does not receive minimum subscription of 90 per cent of the issue, the underwriters shall be required to purchase or procure purchasers to the extent of such undersubscription in accordance with the terms of the underwriting agreement. Here, out of the balance 40 per cent of the undersubscription, the underwriters shall be severally responsible to underwrite up to 8 per cent of the issue size for each underwriter.

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