MUMBAI | Sept 15, 2016: Hindalco Industries will push ahead with plans to sell its alumina plant and mines in Brazil as the commodity price collapse shows no signs of improving.
People close to the development told ET that AV Birla group major wants to use the money to cut debt and focus on the India business where demand is showing signs of improvement amidst stiff import competition.
The Kumar Mangalam Birlaled company is close to appointing an investment banker for the deal. The deal is expected to be in the range of $90 million to $100 million. Metal and commodity companies are trying to sell assets, refinance old expensive loans to survive an increasingly tough operating environment.
Global metal prices have recovered from multi-year lows but demand continues to be weak and margins are under pressure. Vale, Anglo American, Freeport-McMoRan and Barrick Gold are some of the global companies that have shed assets to combat the commodity downturn.
Aluminium prices on the London Metals Exchange fell 11% to Rs 1,571 a tonne during the first quarter of this financial year versus Rs 1,769 a year earlier.
They have started inching up now helped by lower Chinese exports. Shares of Hindalco have jumped 82% in the last one year. It has gained back most of what the stock had lost in a preceding year due to commodity downturn and regulatory issues in India. Vedanta shares have gained 64% in the last one year as commodity prices.
Hindalco has mining rights of up to 50 million tonne from the bauxite mines. The alumina refinery in Ouro Preto in Brazil has a capacity to produce 145,000 tonnes per annum. The businesses are part of Hindalco's wholly-owned subsidiary AV Minerals (Netherlands).
It was earlier part of Novelis, an aluminium can maker Hindalco acquired in 2007 for $6 billion. "We are looking at all non-core operations which normally are very small and don't fit in," said company spokesperson.
The company did not elaborate on the sales process further. This exit will leave Hindalco with two aluminium assets in Brazil that are owned by Novelis. Resource rich Brazil's commodity boom went bust last year as commodity prices crashed world over.
Satish Pai took over as managing director at Hindalco from Debnarayan Bhattacharya in May. A former executive vice president operations at energy giant Schlumberger, Pai's focus is to cut costs and drive up profitability at the aluminium maker, which has struggled with declining profits and rising interest costs.
Hindalco refinanced $2.5 billion of debt in August and September, helping save $54 million in interest annually. Consolidated debt of Rs 67,517.67 crore as on March 31, 2016 should come down after completion of the Brazil deal.
Apart from refinancing, Hindalco exited Australia earlier this year after accepting a takeover bid from MetalsX for partly-owned Australian subsidiary Aditya Birla Minerals in a deal worth $103 million (Rs 530 crore). "The short term outlook is challenging given the structural oversupply and depressed pricing scenario.
The sharp increase in imports will continue to impact sales," said Chairman Kumar Mangalam Birla on Wednesday at its Annual General Meeting. He added that demand in India is expected to be strong as Hindalco sees chances of better infrastructure and industrial growth. The company is also sharpening its thrust on downstream value added products in India, as these yield better realisation, he said.
Hindalco and subsidiary Novelis are at the end of their capital expenditure cycle. The company's three greenfield projects — Utkal, Mahan and Aditya Aluminium, have now ramped up to their full capacity.
(Source: http://economictimes.indiatimes.com/)