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Credit crisis to hit India Inc’s fund raising plans hard

Posted by Manish Agrawal on Tuesday, 16 September, 2008

The crisis on the Wall Street would hit the fund-raising plans of India Inc hard. “The markets are shaky… and that could be bad news for a lot of Indian companies which are planning to raise funds by way of equity. Even fund-raising programmes through debt will become expensive,” an investment banker said.

The banker said the problem actually began few weeks ago. The companies, including the big ones, are finding it difficult to raise funds.

“The cancellation of issue of preference shares worth Rs 3,000 crore by Tata Motors perhaps is an indicator to the long and painful journey ahead,” he added. However, some companies, which have already raised funds and are good at project implementation may not face the burnt.

But others, especially second-rung firms, will have to either abandon or delay projects, he said. Instead of capital inflow into the country, there will be higher outflow of funds from the country of $3-3.5 bn in the rest of the calender year, an official with an institutional investor said.

The country has already witnessed an outflow of $7 bn from the equity market till now in the calendar 2007, he said.

Even at international debt markets, the rates have gone up by 200 to 300 basis points in the past one year and is expected to go up further. “Even the good companies are not getting good deals in raising debts which has in turn increased the project costs,” he said.

No wonder, the managers of Hindalco and Tata Motors’ rights issues are a nervous lot. Hindalco, which has lined up five investment bankers to underwrite its Rs 5,047 crore issue, hopes that its offer will not have any problem from the Wall Street crisis.

Merrill Lynch, which has been taken over by Bank of America on Sunday for $50 bn, is one of the Hindalco’s underwriters. At the same time, the company is paying close to 2% more for refinancing its $2-bn international bridge loan which it had taken to fund Novelis take-over. Earlier, it had raised fund at an interest rate of Libor plus 1.25% for the acquisition of Novelis in 2007. The refinancing rate has gone up to Libor plus 3.5%. “We already have a commitment from Merrill.

So, from the Hindalco’s point of view, we do not foresee any problem,” said a banker close to the rights issue.

The shaky stock market was one of the main reasons why Hindalco went in for underwriting of the 40% of issue with banks and 50% of the issue will be underwritten by the promoters themselves.

Tata Motors, which is raising Rs 4,200 crore through a rights issue to fund its Jaguar Land Rover acquisition, is also getting underwriters.

JM Financial is learnt to have promised to underwrite the issue partly while the remaining part to be underwritten by the promoters. “There is no assurance that the stock market will not remain volatile in future.

The earlier the rights issue gets over, it is better for the company,” a Tata official said.

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