Billionaire Birla Said to Seek $350 Million Selling Real Estate

Billionaire Kumar Mangalam Birla is seeking to raise $350 million from the sale of land to help pay for coal mines his group won in government auctions last month, according to people familiar with the matter.

His flagship company Hindalco Industries Ltd., India’s No. 2 maker of aluminum and copper, is looking to sell surplus real estate at four locations, the people said, asking not to be identified as they aren’t authorized to speak on the subject. Hindalco has hired advisers to complete the deal by March, they said.

A successful transaction may help the Mumbai-based metal producer bolster its finances as its debt surged 58 percent in the two years through March 2014. The company needs to pay as much as 348 billion rupees ($5.5 billion) for the four blocks over 30 years, according to estimates based on data provided by state-owned MSTC Ltd., which conducted the auctions.

“The result of the aggressive bids is that the cost of production has gone up and cash flow generation will be impacted,” said Rakesh Arora, the Mumbai-based head of research at Macquarie Capital Securities India. “That will delay the company’s debt repayment plans and limit its ability to take new growth projects.”

The sites identified for sale are in the states of Gujarat and Maharashtra in the west, and Karnataka and Andhra Pradesh in the south, the people said.

Shut Unit

That includes a plot of about 35 acres in Thane, near Mumbai, India’s most expensive real estate market, which may fetch about 12 billion rupees, the people said. The land is at the site of a 6,000-metric-ton metal foil unit that was shut four years ago.

Pragnya Ram, the spokeswoman for Hindalco, didn’t respond to an e-mail seeking comments.

In September, the nation’s top court canceled most of the 218 coal mines given away to companies for their own use since 1993, terming the allocations illegal and arbitrary. The court also asked the government to auction the mines whose permits had been rescinded.

Hindalco, which had given up four mines because of the court order, won back as many amid fierce bidding five months later, according to MSTC.

Stripped of its coal mines, the company has had to import the fuel, paying higher freight to run its smelters. The purchases may be prolonged until the company gets approvals of regional governments to start mining, the people said.

In a November interview, Birla had expressed concerns that competitive bidding would increase production costs and delay debt-reduction plans. Birla’s net worth is $6.4 billion, according to the Bloomberg Billionaires Index.

No Advantage

“They managed to secure only about a third of their captive needs and the bids were aggressive,” said Abhisar Jain, an analyst at Mumbai-based Centrum Broking Pvt.

The sale of land will also help the company to buy coal until mining starts at the blocks awaiting fresh permits.

Electricity accounts for almost 40 percent of the smelting cost of aluminum, which makes it imperative for the company to be frugal with coal.

Other Indian companies including Tata Steel Ltd. and Clariant Chemicals India Ltd. have also sold land near Mumbai over the past year. In March 2014, real estate developer Oberoi Realty Ltd. bid 11.6 billion rupees for Tata Steel’s 25-acre plot in the Borivali suburb of Mumbai, while Clariant agreed to sell an 87-acre plot in Thane to Lodha Developers Pvt. for 11.5 billion rupees the following month.

Federal Probe

Shares of Hindalco have slumped 32 percent since touching a 3 1/2-year high in July amid a federal investigation into the allocation of coal blocks during the previous government, compared with a 5.6 percent gain in the benchmark S&P BSE Sensex. The stock rose 0.3 percent to 135.05 rupees at close of trade in Mumbai.

Some analysts say aluminum prices hold the key to better days for Hindalco.

Cash prices on the London Metal Exchange have fallen 0.3 percent this year, after rising 4 percent in 2014. The premiums, the cost to get the light-weight metal out of an LME warehouse, have plunged about 27 percent since peaking at $530 a metric ton in January, according to Bloomberg Intelligence analyst Kenneth Hoffman.

“The next trigger for the stock would be an increase in aluminum prices or operational efficiencies, leading to cost savings,” said Centrum’s Jain.

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