Fitch puts Hindalco on negative watch

Fitch Ratings said it placed Hindalco Industries Ltd.'s AAA(ind) national long-term rating and its AAA(ind) Rs. 5 billion non-convertible debenture program on Rating Watch negative following the announcement of the company's $5.95 billion acquisition of Novelis Inc., which is expected to be completed by the end of the quarter.

The transaction value includes the refinancing of the $2.4 billion term debt and bonds presently on the books of Novelis, which will be without recourse to Hindalco. The company plans to finance the remaining $3.55 billion with $308 million from Essel Mining & Industries Ltd. - a closely held Aditya Birla group company - $450 million from Hindalco's existing liquid balances and $2.8 billion to be raised by a wholly owned special purpose vehicle of Hindalco incorporated in Canada.

The Rating Watch placement reflects the additional debt needed to finance the acquisition. The agency noted that while the investments for certain projects have started, the financing plan and investments schedules of others are still to be firmed up. If the acquisition is finalized on the above terms, Fitch expects the national long-term rating to come under pressure.

The acquisition will help Hindalco become a meaningful global player, the agency said, with strong primary metal and downstream capacities, giving it a presence across the value chain.

The gross debt-to-EBITDA ratio was 2.38x for 2006.

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