MUMBAI: In what would easily be the most aggressive financing done in recent times involving a large Indian corporate,AdityaBirla Group flagship Hindalco has managed to refinance Rs 4,700 crore from State Bank of India and Axis BankBSE -2.44 %for its Utkal alumina project.
At an interest rate of 10.15% payable over an eight-year period, this will imply a reduction of a whopping 300 basis points from the previous loan.
Scheduled to be commissioned in the second half of this year, Utkal is a 1.5-million-tonne refinery that will feed the company's Mahan and Aditya smelters in Madhya Pradesh and Orissa, respectively. The total project cost is Rs 7,009 crore, 70% of which has been funded through debt.
The project debt of Rs 4,906 crore was tied up three years ago from a consortium of 28 public sector banks, including SBI, Punjab National Bank, Bank of Baroda and Canara Bank. Interestingly, the banks had agreed to allow HindalcoBSE 1.04 % to draw down the amount over a three-year period during the construction of the plant without any commitment fees.
The company also retained the right to pre-pay the facility, without any penalty, every year. With the project gearing up for commissioning, there was much better visibility of future cash flows and EBITDA, which helped Hindalco go for refinancing on much better rates ahead of this year's loan anniversary. Of the total amount, Rs 4,000 crore was raised as a rupee term loan from the two banks at SBI's base rate plus 50 basis points, which translates to 10.20%. The remaining amount was financed from the CP market as short-term debt at 9.95% rate.
This makes it the lowest pricing achieved by any corporate in India in recent times, amid unprecedented volatility. Banking industry officials said that with most banks having a base rate higher than 10.20%, it became difficult for them to match Hindalco's expectations.
"The deal demonstrates the creditworthiness of the company and its ability to tap markets at benchmark rates in spite of liquidity and rates hardening in recent weeks. Utkal will be able to realise annual savings of approximately Rs 150 crore," said Alphonso Richard Das, president (finance), Hindalco. The exercise assumes significance as it was concluded in the backdrop of a challenging financial market during the past one month.
There were massive capital outflows due to concerns over the US Fed Reserve contracting its quantitative easing, following which the rupee went into a free fall resulting in 12-15% depreciation. RBI intervened with a series of steps to stem the currency's fall, but that choked up liquidity in the banking system. These sudden developments ended up spiking the government's borrowing costs to double-digit levels.
Hindalco, said corporate banking sources, also had to tweak its strategy by dropping its initial bond issue programme, and opt for bank debt. Utkal Alumina International Ltd had planned to raise Rs 2,000 crore ($335.8 million) through a 10-year floating rate paper benchmarked to the SBIBSE -1.02 % base rate.