The current hammering in the secondary market has provided the Tatas an opportunity to hike their holdings in group companies. After Tata Steel, Tata Sons is slated to increase its ownership in The Indian Hotels Company, the largest hospitality chain in the country, by over 5 percentage points to over 34.6 per cent.
However, the group is not planning a preferential issue, rather the stake hike will come aout because of poor response to its ongoing right issues of equity shares and non-convertible debentures with detachable warrants. The equity issue is expected to be subscribed by existing shareholders because it is priced at Rs 70 a share against a current market price of Rs 112. However, the non-convertible debentures are unlikely to be subscribed because the warrants are convertible at Rs 150 a share.
"Subscription to the non-convertible debentures would help the Tatas to bolster their holding by 5.6 percentage points," said investment banking sources. “When we were pricing the warrants the market price was around Rs 140, but now the situation has changed,” said sources close to the development. The Indian Hotels scrip had touched a peak of Rs 175 on January 1, but after the bloodbath of January 22 it closed at Rs 114.
According to the letter of offer of the right issues, Indian Hotels, with a market capitalisation of Rs 6,761 crore, is raising Rs 2,351 crore though a combination of equity shares, non-convertible debentures and conversion of warrants. Through the right issue, which will close on April 15, the company is issuing 120.5 million equity shares in the ratio of one for every five held. It is also issuing 60.2 million non-convertible debentures of Rs 100 each along with detachable warrants that will be converted into equity at Rs 150. The non-convertible debentures carry an interest rate of 6 per cent.
“In the given interest rate scenario, it will be difficult for investors to buy non-convertible debentures with a coupon rate of 6 per cent and the conversion price of the warrants is also at a significant premium to the underlying price in the secondary market,” said an executive with an institutional investor.