Under the microscope
Anil Rustogi, president of Aditya Birla Nuvo, talks to IFR about the company’s funding strategy.
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Aditya Birla Nuvo is a US$4.5bn conglomerate and part of the Aditya Birla Group, one of India’s private sector champions. Known as Indian Rayon until 2005, when it was renamed Aditya Birla Nuvo, the manufacturing company has grown into a conglomerate including financial services, telecommunications, fashion and lifestyle, information technology and manufacturing businesses.
Rustogi was instrumental in a US$900m three-part financing backing the acquisition of US-based Columbian Chemicals in June 2011 by the Aditya Birla Group. The financing won the IFR Asia Loan Deal of the Year for 2011.
IFR: What are your company’s funding requirements for the next 18 months?
RUSTOGI: We have planned capex of Rs6.74bn (US$121m) for the financial year ending March 2013 (FY13) and Rs4.5bn for FY14.
IFR: What is the funding mix between equity and loans/bonds?
RUSTOGI: The split between equity and loans/bonds is dependent on our leverage levels, which we and our lenders would be comfortable with. As of end-June 2012, our net debt to equity was at 0.63%, while our net debt to Ebitda was 4.5x. The net debt to Ebitda would have been lower at 3.98x, but for the delayed receipt of a government subsidy of Rs4.25bn.
IFR: What are the main criteria that determine your preference for a particular mode of funding?
RUSTOGI: Usually, we undertake equity funding to maintain leverage at reasonable levels or to fund long-term investments. We borrow through loans for capex funding and through domestic bonds for general corporate purposes. Our operations generate strong annual cash flows. For FY12, cash flow from operating activities was about Rs5bn, which essentially is equity funding.
IFR: What part of your funding requirement is sourced from the domestic market?
RUSTOGI: Our entire funding requirement is sourced from the domestic market, excepting loan funding for capex.
IFR: How cost effective is it now to borrow offshore as compared to the domestic market?
RUSTOGI: The cost-effectiveness of offshore borrowings, as compared to the domestic market, varies from time to time and depends, inter-alia, on swap levels at the time of borrowing as we hedge foreign exchange and interest-rate risk on offshore borrowings. Presently offshore loan borrowings are cheaper by about 200bp and 125bp, compared to domestic loan and bond market funding, respectively.
IFR: Given that interest rates in international markets are low, do you have any plans to issue foreign currency bonds?
RUSTOGI: We have no plans to issue foreign currency bonds as of now.
IFR: How do you perceive perpetual bonds, which have caught on with issuers/investors in domestic and international markets?
RUSTOGI: These are good for borrowers with high leverage levels and in need of increased equity. It is also a useful funding tool where there are limitations in terms of availability of equity. Moreover, with the existing depressed state of equity markets, in some cases issuing perpetual and hybrid bonds is a better alternative to raising funds through equity.
IFR: Considering the ongoing crisis in the Eurozone, what challenges does your organisation face from a capital-markets perspective in the next 12–15 months?
RUSTOGI: We have no immediate requirement of accessing capital markets for equity because, in May 2012, we issued warrants to the company promoters [founders] on a preferential basis to raise Rs15bn. Of this amount, 25% has already been received and the balance is expected within 18 months as per Indian capital markets regulations. Also, as explained above, as of now we have no plans to raise funds through offshore bonds.
IFR: In light of the tight liquidity in funding markets, will you focus on achieving cost-effective pricing on your borrowings or will you be willing to pay up to achieve broader objectives?
RUSTOGI: Fortunately, in view of our credit profile and reputation, our access to funding at attractive pricing levels has not been affected and availability has never been the issue so far. Our focus remains on cost-effective pricing as lenders are happy to lend at attractive pricing where they are comfortable with credit.
IFR: What are your views on ECB (external commercial borrowing) guidelines? Do you think they are overly restrictive to Indian borrowers?
RUSTOGI: ECB guidelines have been gradually liberalised over the years, keeping in view the changing market conditions and dynamics. As long as India maintains partial convertibility of the rupee on the capital account, some of the restrictions will remain.
IFR: What changes, if any, would you like to see to the ECB guidelines?
RUSTOGI: Corporates would love to be able to borrow offshore to fund domestic acquisitions and for refinancing of rupee loans in general.
IFR: Do you have any plans to list Aditya Birla Nuvo on overseas?
RUSTOGI: Aditya Birla Nuvo was the one of the earliest issuers of GDRs from India when the country allowed Indian companies to issue such instruments. Those GDRs, issued in January 1994, are still outstanding.
IFR: What are the merits of an international listing for your organisation?
RUSTOGI: Factors determining an international listing are dependent, among others things, on global operations vis-à-vis domestic operations, price expectations of investors in international markets vis-à-vis the domestic market. Furthermore, unless the funding requirement is large, an international offering may not be warranted.