Fears surrounding the global financial crisis and its subsequent effect on the international markets may not be as bad they seem, not as far as raising funds is concerned. And, it may have taken an Indian company to prove it – the country’s largest copper producer.
In what could be termed as the largest U.S. share sale (India-based) in the past two years, Sterlite Industries has successfully raised $ 1.5 billion or Rs 7,305 crore through American Depository Shares (ADS).
This was done to develop its power generation business as well as to have the wherewithal to fund acquisitions. The last time an Indian company managed to raise similar amounts was in June 2007 when ICICI Bank raised around $ 2.46 billion.
The spectacular nature of the Sterlite effort is that it has repeated the feat, having earlier managed to raise almost $2 billion. The US offering was priced at $12.15 each, which was a discount of 6 per cent to Wednesday’s closing price for Sterlite in the US and one per cent higher than the minimum price of $12.14 set by Sterlite.
Each ADS represents one equity share.
Sterlite’s London-listed parent Vedanta bought $500 million of the issue, reducing its stake in Sterlite to 57.5 per cent from 61.7 per cent on the expanded equity base.
ADS is a vehicle for foreign corporations to list their ordinary equity on an American stock exchange, such as the New York Stock Exchange. Foreign corporations listed in other markets are not permitted to make direct secondary listings in the US markets, which is why this sort of an indirect ownership has been devised.
ADSs are U.S. dollar denominated and each share represents one or more underlying shares in the subject. These ADSs confer full rights of ownership (including dividends, voting rights) to these underlying shares, which are held in deposit by a custodian bank in the company's home country or territory.
The funds are likely to be utilised for building power projects, the process for which has already been initiated by the company. It would add 11,000 MW to its capacity. Out of this, around 2,000 MW is already in use with an investment of around Rs 9,000 crore. The company would need another Rs 47,000 crore for setting up its other plants.
What more, while the company also plans to buy US-based copper miner Asarco for about $1.87 billion, besides buying a residual 49 per cent stake in Bharat Aluminium Company (Balco) and 29.5 per cent stake in Hindustan Zinc from the government, for which it would require about Rs 10,000 crore, reports Business Standard.
The move had caused the company’s stock price to plummet 6 per cent in India as it would dilute the earnings per share of the company since it entailed an issue of 123 million shares, which adds up to a mammoth 17 per cent of its total.
Sterlite Industries was trading at Rs 595 from its previous close of Rs 590.15, which up by 0.82 per cent on the Bombay Stock Exchange at 11.23 a.m. today.
What Does American Depositary Share - ADS Mean?
A U.S. dollar-denominated equity share of a foreign-based company available for purchase on an American stock exchange. American Depositary Shares (ADSs) are issued by depository banks in the U.S. under agreement with the issuing foreign company; the entire issuance is called an American Depositary Receipt (ADR) and the individual shares are referred to as ADSs.