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ACC
ACC will issue rights shares in the ratio 1:4 at Rs 55 a share (Rs 10 paid up), and also make a preferential issue of up to 0.9 crore naked warrants or equity shares to the Tata group. It is impossible to estimate the appropriate equity dilution because the warrants (if issued instead of vanilla equity) could be converted ex-rights, and the "relevant date" for the pricing of warrants could be different.
The "relevant date" can be a date 30 days prior to that on which the holder of warrants becomes entitled to apply for the shares. Ideally, the warrants should be exercised ex-rights as it will a mean lower cash outflow for the same stake. If converted after the rights issue, the rise in the Tata group's stake will be 1 per cent lower (from 13 per cent to 17.33 per cent). So, it is logical to expect the offer to be post-rights. The dilution will be reflected only in 1999-00. But in ACC's interests, the Tata group might opt for warrants conversion prior to the rights issue.
Even if one assumesthe best-case scenario for ACC conversion of warrants at Rs 110 a share and a rights issue post warrant conversion, the cash inflow or equity dilution will be worth Rs 301 crore. Reports say the asking price of Rs 600 crore for Tisco cement plants includes reimbursement of Rs 60 crore cost overrun, which was due to the 10-month delay in starting commercial production.
None of the three bidders (ACC, L&T and Grasim) is willing to accept the cost-overrun component. The floor price for Tisco plants is reportedly Rs 400 crore. Considering that ACC is yet to receive the funds for the sale of 125mw (including 2x25mw captive power plants at Jamul and Kymore), raising funds for the acquisition shouldn't be a problem. At Rs 540 crore, ACC's cost per tonne works out to be Rs 3,120. Though the obvious negative point is equity dilution, but the capacity of 1.73 million tonnes will be acquired in the east, where ACC is the strongest player.
Prima facie, the realisation of the slag cement plant at Rs 105 per bag(average price for 1997-98) appears low, but the operating margin is at least at par with most ACC plants due to lower requirement of clinker in slag cement. The cost per tonne of slag is in the range of Rs 370-400, almost 30 per cent lower than the cost of clinker. Tisco plants have a high electricity consumption of 117 units, and they need improvement. Till the clinker stage, the consumption is 69 units (normal is 65-70), and hence, it should not be too difficult to bring down power consumption to the normal level of 105 units and improve margins.
The rights issue is priced at a discount to the book value probably to ensure that the issue goes through. The problem is that if the company fails to acquire Tisco's plants, it will have an unserviceable equity. Though the funds will be utilised for expansion at Wadi, returns will not accrue for the next 24 months. Of all the options for acquisition listed by TSMG, the only viable one is the cement division of Raymonds (2.2 million tpa), located in MP. Unlessthe deal for Tisco units is finalised, the ACC stock will not rise.
In 1997-98, on the contract's expiry, ACC had sold the slag granulation plant at Jamshedpur to Tisco. If the cement unit is acquired, the granulation unit will also come back to ACC. TSMG has valued the cement unit at Rs 400 crore (assuming that net cement realisation improves from Rs 1,338 to Rs 1,550). Any bidder paying a higher price will see its scrip hammered. ACC's stock will, therefore, depend on the price at which it manages to acquire the Tisco units.
Mangalore Refineries
MRPL will become the first company after IOC to import crude oil since the government decanalised its imports from April 1, 1998. The decanalisation was meant for private and joint-venture refineries. Hence, other public-sector refineries like HPCL and BPCL are unable to import their needs, and have to rely on IOC. The MRPL refinery operates on international crude, and so is likely to benefit a lot from its own procurement rather than canalising itthrough IOC.
However Triumph Research analyst Rajesh Iyer said that the company would be slightly affected as IOC had better bargaining power with respect to its bulk purchases, but this will be only a small negative in the whole deal. The company will benefit from the fact that unlike IOC, it will be able to source crude on a contract basis, as against the spot-market dealing which IOC used to do. This way, the company can also lock its price and currency risk in the futures market. Though domestic firms have not yet been allowed to trade in the international market, there is nothing stopping them to import it from a trader willing to hedge the risk on their behalf. But this may change with the government possibly allowing Indian firms to hedge in the international commodities market.
For entering the volatile futures market, the company will need a high level of expertise, which no Indian company has. Reliance has hired people with a huge pay-packet to look after such dealings as it can very well decidethe refinery's fate. Whether MRPL has such capabilities or not will only be known after the company starts its crude-procurement operations.
(With contributions from Urmik Chhaya & Shishir Asthana)
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
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