hindalco indogulf restructuring

7/28/2019 Hindalco IndoGulf Restructuring

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PRESS RELEASE

July 21, 2002 Mumbai, India

LANDMARK CORPORATE RESTRUCTURING

OF HINDALCO AND INDO GULF TO CREATE

NON FERROUS METAL POWERHOUSE AND

AN INDIAN CORPORATE GIANT

Indo Gulf to merge copper business with Hindalco

Fertiliser business of Indo Gulf to be demerged into a separate

company to be named Indo Gulf Fertilisers

1 equity share of Hindalco for 12 equity shares of Indo Gulf and

1 equity shares of the fertiliser company for 5 equity shares of Indo

Gulf to be issued to Indo Gulf shareholders

Attractively priced open offer for Indal shares at Rs. 120 by Hindalco

at premium of 36% to 26 Week Average (SEBI Statutory Price)

with aim to attain 100% shareholding in INDAL

EPS accretion of approximately 7-10% in the short term and 15-20%in the medium term for Hindalco shareholders

Premium over market price for Indo Gulf shareholders

Transaction expected to be value enhancing for shareholders of all

three companies



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The Boards of Directors of Hindalco Industries Limited (“Hindalco”) and Indo Gulf

Corporation Limited (“IGCL”), in their respective meetings today have approved the

restructuring proposal on the consolidation of the copper business of IGCL with Hindalco and

the demerger of its urea fertiliser business as an independent entity. The scheme of arrangement,

valuation report and share entitlement ratio has also met with Boards’ approval. This landmark

restructuring, valued at around Rs. 7,000 crores (US$ 1.4 billion), is one of the largest of its

kind in India.

Mr. Kumar Mangalam Birla, Aditya Birla Group Chairman, said “This restructuring exercise is

an important step in our ongoing endeavours to create a business that is both focussed and has

the financial capability to become a global player. The non-ferrous metal sector is integral to our

future growth plans. We would like to bring in maximum focus and harness all possible synergies

to make it truly world class.”

Putting this in context of a similar exercise by the group for its cement businesses four years ago

in Grasim and Indian Rayon, Mr. Birla said, “we created significant value for shareholders

together with market out-performance for both those group companies in a similar restructuring

exercise and expect to do the same through this transaction.”

The Restructuring Scheme

Under the scheme, Hindalco will issue to IGCL shareholders 1 equity share of Hindalco for

every 12 equity shares of IGCL held. IGCL shareholders will also receive 1 equity share of a

new company to be named as Indo Gulf Fertilisers Limited (“Indo Gulf Fertilisers”) for every 5

equity shares of IGCL. Similarly, the GDR holders of IGCL will receive 1 GDR of Hindalco for

every 12 GDRs held by them in IGCL, and receive 1 GDR of Indo Gulf Fertilisers for every 5

GDRs held by them in IGCL.

The recommended swap ratio is expected to translate into a reasonable premium to IGCLshareholders based on current Hindalco share price and estimated price for Indo Gulf Fertilisers

based on fertiliser industry multiples and the company’s financial performance and balance sheet

strength.

The share exchange ratio approved by the Board of the two companies was based on a joint

valuation report, of CC Chokshi & Co., a member firm of Deloitte Touche Tohmatsu and Ernst

& Young. The share exchange ratio has been determined in accordance with the best practices



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in valuation using well-established techniques such as discounted cash flow, book value and

relative market prices.

As per the approval of the Board, Hindalco is also simultaneously making a voluntary open offer

for the balance shareholding in INDAL at Rs. 120 per equity share, thereby providing an

opportunity to INDAL shareholders to exit their holding in the company at an attractive

premium to the market price. Consequent to successful completion of the offer, Hindalco

proposes to de-list INDAL from all the Stock Exchanges. The open offer price is at 24 %

premium to last 1 month average price and 36 % premium to the 26 week average (SEBI

statutory price).

To facilitate this plan, on July 21, 2002, the Board of Directors of Hindalco also took note of

the stoppage of the Buyback programme and approved closure of the scheme.

The Restructuring Plan

Mr. Birla stated that the global consolidation trend has accelerated the growth of the bigger

players at the expense of smaller players. In his view, “Even though Hindalco and IGCL’s

copper business have performed excellently relative to their global peers and are expected to

continue to do so, given the current global environment, the coming together of these businesses

will propel their future growth at a faster pace.”

He explained that “this transaction will enhance our financing capability, access to global

opportunities as well as investor interest, as capital markets increasingly reward larger players

with better valuations. A stronger balance sheet created by such a merger undoubtedly opens a

window to a variety of value enhancing opportunities.”

Capital markets have rewarded multi-resource companies, for instance BHP Billiton and Rio

Tinto, which are key examples of multi-resource companies with global leadership positions inmetals. These companies have significant exposure to both aluminium and copper and have

demonstrated superior capital market performance in recent times as compared to perceived

metal pure-plays. The market has rewarded these players for taking proactive steps in a

consolidating industry, having balanced exposure to commodities without exposure to

commensurate risks, financial strength and strong cash flow generation and high resilience to

risk.



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Mr A.K. Agarwala, Director (Whole-time), Hindalco Industries stated “Our intent is to

transform Hindalco into a globally competitive non-ferrous metals powerhouse and create

enhanced value for all stakeholders.”

Mr. D. Bhattacharya, Managing Director, Indo Gulf Corporation said, “Even though Hindalco

and IGCL have demonstrated strong performance continuously, we believe that the stock of

both these companies is undervalued. We believe that over the medium term this restructuring

should help correct this anomaly and should result in a positive re-rating of the combined entity.”

Building a Platform for Value Enhancing Growth Post Restructuring

Post restructuring, Hindalco will emerge as one of the largest private sector companies in India

(proforma at March 31, 2002 and including full financial consolidation of INDAL and Dahej

Harbour & Infrastructure Ltd.):

Ø Net sales in excess of Rs. 6,000 crores (US$ 1.2 billion), an increase of around 60%

Ø Net profit in excess of Rs.1,000 crores (US$ 200 million), an increase of around 36%

Ø Net worth in excess of Rs.6,000 crores (US$ 1.2 billion), an increase of around 25%Ø Balance sheet size in excess of Rs.10,000 crores (US$ 2.0 billion), an increase of around

30%

Over the medium term, the transaction is expected to create a company with a very strong

operating/ financial growth story:

Ø Aim to triple the revenues within next 5 years . . .

Ø . . .resulting in EBITDA growth of around 250%. . .

Ø . . .resulting in substantial increase in financing capability in the medium term

The transaction is expected to be beneficial to shareholders of both Hindalco and IGCL. Themerger would enhance value for shareholders of Hindalco, which will include all shareholders of

Indo-Gulf, through the creation of a larger non-ferrous metal company with the strong

profitability of the copper business and full consolidation benefits of INDAL’s earnings.

Importantly, the transaction is expected to provide attractive EPS accretion for Hindalco

shareholders of approximately 7-10% in the short term and 15-20% in the medium term.



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For shareholders of IGCL, benefits accrue from the opportunity to participate in the future

growth of Hindalco as they would become its shareholders as well as continue as shareholders

of a robust and focussed fertiliser entity Indo Gulf Fertilisers that is expected to:

Ø have a strong debt free balance sheet with significant leverage capability for future

initiatives in the sector

Ø continue to enjoy a leadership position in profitability in the industry as one the most

cost efficient Urea producers

Ø be well positioned to benefit from a market re-rating, attractive demand growth, likely

industry policy changes, as also from disinvestment opportunities in the sector

Advisors to the Restructuring

DSP Merrill Lynch Limited (DSPML) acted as Transaction Advisors; DSP ML, one of India'sleading investment bank and securities firm is an affiliate of Merrill Lynch & Co. (ML), one of

the world's leading capital raising, financial management and advisory companies.

Amarchand & Mangaldas and Suresh A. Shroff & Company, one of India’s leading law firms

acted as Legal Advisors.

The valuers to the transaction were CC Chokshi & Co. (a member firm of Deloitte Touche

Tohmatsu) and Ernst & Young.

The proposed restructuring will be filed in the High Court of Judicature at Mumbai and the HighCourt in Uttar Pradesh. The restructuring will further be subject to various approvals, including

those from shareholders, regulatory authorities and lenders / creditors.

hindalco indogulf restructuring

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