Investment banking fees in India touch $200 mn from Jan-Feb 2007

Investment banking houses in India have generated a deal fee of around $200 mn in the months of January and February in 2007, as compared to $150 mn for the total year of 2006. Total fees earned during 2006, including equity and debt capital for India, was around $500 mn. Of the $500 million, equity capital markets could have contributed around 60% while around 10% could be the debt capital market fees. The M&A transactions have contributed the remaining $150 mn. Equity and capital market deals entail issuance of shares and bonds by companies to raise money.

For multi-billion deals above $10 bn, advisory fees range from 0.1% to 0.2% of the deal size or anywhere between $10-25 mn. Global i-banks charge a minimum of $1 mn. For small-sized deals, the fee could be around 3.5% of the deal size. With corporates looking at big-ticket deals which require large syndication ability of banks, a commitment fee is also now being levied. This would ensure a minimum payment to i-banks from the deal, even if the corporate eventually loses out in the bidding battle. As deals turn complex, i-banks have also started levying ‘drop dead’ fee or non-refundable fee in case of failed transactions. This is simply to compensate for their time and effort. The bigger chunk of the fee collected by i-banks is garnered from financing and structuring the deal. This fee could range anywhere between 0.50% and 1.25% of the deal size. Fees are higher for equity transactions.

In most of the recently announced deals, European banks have been the lead advisors as Europe has been the destination for the maximum number of acquisitions by Indian corporates. In case of Tata Steel, it was ABN-AMRO, Deutsche Bank and NM Rothschild, while in case of Vodafone and Hindalco, UBS was the sole advisor.

Read more in The Economic Times article.

Russia’s Rusal may counter-bid for Novelis

Hindalco’s bid for Novelis may see competition from Russian steel major Rusal. Rusal is the world’s largest aluminium and alumina producer. Hindalco will pay the shareholders of Novelis $44.93 per share, or $6 bn, to buyout the US-based company.

Hindalco’s offer has been cleared by the Novelis’ board but is yet to be approved by shareholders. Novelis was spun off Canadian aluminium major Alcan but incorporated in Atlanta in the US. Under Canadian laws, any new bidder would have to pay a break-fee and also better the existing offer. Other potential bidders, such as private equity firm Texas Pacific Group, are also considering mounting a counter-bid for Novelis. Texas Pacific Group controls US-based Aleris.

Regulations stipulate a $100 mn break-fee payable to Hindalco, if a competing bid is made and if in the event, the deal is derailed. As per terms agreed between the Hindalco and Novelis boards, about 66.66% of Novelis shareholders present and voting must tender their shares for Hindalco to go ahead with the deal.

Rusal recently created a three-way merger with Russia’s Sual group and Switzerland’s Glencore International to become the world’s largest aluminum and alumina producer. The annual production would total 4 mn tonnes of aluminum and 11 mn tonnes of alumina, accounting for about 12.5% of global aluminum and 16% of the global alumina market.

Read more in The Economic Times article.

Hindalco Industries buys US-based metal major Novelis for $6 bn

Hindalco Industries, the AV Birla Group’s flagship company and India’s largest aluminium producer, will acquire US-based aluminium company Novelis for $6 bn. The deal envisages a payment of $44.93 per share, which is 16.5% more than its last closing prices to Novelis shareholders amounting to a total of $3.5 bn. In addition, Hindalco will take on its books Novelis’ debt of $2.4 billion. The acquisition would help Hindalco get access to large customers like Coca-Cola, Ford, General Motors, Eastman Kodak and Thyssenkrupp. The acquisition is expected to be completed by the second quarter of 2007. The Novelis board has recommended the offer to its shareholders, largely financial institutions. The Novelis management will remain unchanged after the acquisition.

Novelis was spun off from Alcan, Inc. to meet anti-trust concerns after acquiring France’s Pechiney SA for about $4 bn in February 2004. it controls 19% of the world’s flat-rolled aluminium production. It is also the global leader in recycling of aluminium cans. The company operates in 11 countries and has 12,500 employees.

To finance the deal, Hindalco will contribute $450 mn from its treasury operations, while a closely held group company, Essel Mining & Industries, will invest another $300 mn. UBS is the financial advisor to Hindalco for the acquisition.

Novelis has about $3.2 bn in debt and loans outstanding. In November 2006, it reported a loss of $102 mn, or $1.38 a share, in the third quarter. In 2005, the company had reported net sales of $8.4 bn but incurred a loss due to contractual obligations. It is expected to turn profitable in 2010.

Read the article in Business Standard.

Hindalco to bid for Alcan’s US subsidiary

India’s leading aluminium company Hindalco Industries may bid for the US subsidiary of Canadian aluminium major Alcan. Alcan is the world’s second largest aluminium maker.
Revenues of the undisclosed unit are estimated to be in the range of $2 bn and $3 bn.

Hindalco already has a joint venture with the Canada-based Alcan, called Utkal Alumina, to build an alumina refinery in Orissa. The proposed bid would be part of the company’s ambitious plans to become one of the top 10 aluminium producers globally over five to six years.

Hindalco recently formed a joint venture partnership with Almex USA, Inc. to make high-strength aluminium alloys used in the aerospace, sporting goods and surface transport industries. The joint venture is to be named Hindalco-Almex Aerospace. Hindalco owns 70% of the equity capital, with Almex holding the balance 30%.

Read the articles in The Economic Times and Business Standard.