Financial Management & Corporate Finance Case Study

Case Title:

Hindalco’s Rights Issue: India’s Largest Rights Issue Fiasco

Abstract:
This case study was written primarily to have an overview of a rights issue with specific reference to two important factors – pricing and timing of a rights issue. This case study focuses on Hindalco’s rights issue.Over the years, Hindalco has grown to be India’s largest vertically integrated aluminium company and the world's largest aluminium rolling company with its Novelis acquisition. The acquisition necessitated $3.03 billion bridge loanwith 18-month tenure with an interest tag of LIBOR + 30 bps for the first 12 months and LIBOR+ 80 bps for the next 6months.To tide over this loan, the company contemplated andwent in for a rights issue for $1.14 billion under a comprehensive plan for repayment. However, what followed was a classic unplanned failure,where the issue was under subscribed by 44.03% which by far the first ever rights issue in India being under subscribed. The underwriters had to step into underwrite the balance.

This case study offers a rich discussion on the efficacy of a rights issue and all the other accompanying issues surrounding a rights issue.

Pedagogical Objectives:

• To understand the efficacy and operating dynamics of a rights issue and weigh the merits of this source of finance vis-à-vis other sources of finance
• To discuss and deliberate on themodalities of Hindalco’s rights issue and debate on its mode of financing its acquisition
• To analyse the reasons for Hindalco’s rights issue being under subscribed and debate on what could have prevented such a situation.

Keywords : Rights Issue; Global Depository Receipts; Global credit market; Bridge Loans; LIBOR; Equity shareholders; Underwriting; Stock Exchange; Stock Split; Bonus Issue; Managerial Finance; Business Finance; Finance for Managers; Corporate Finance; MBA; Financial Management; Financial Management Course Case Pack; Course Case Maps; Course Case Packs; Financial Management Course Case; Principles of Financial Management