Hind Copper prefers ECB to Nalco equity

Hindustan Copper Ltd, the country’s sole integrated copper miner, is planning to raise Rs200 crore through external commercial borrowings (ECB) to bridge a funding gap between its own cash reserves and capex need for its ongoing mine development projects.

The state-owned company has communicated this choice of funding route to the ministry as it has delinked its long-delayed follow-on public offer to its investment need, chairman and managing director Shakeel Ahmed told DNA.

The ECB would, however, be raised only in 2013-14 when this funding gap is expected to emerge.

HCL had earlier entered into a pact with another state-owned company, National Aluminium Co Ltd (Nalco), to explore ways to get equity participation for its mine development programme.

“In 2013-14, we could have a small funding gap of Rs207 crore. Now this gap may go up or down depending upon the movement of copper price at London Metal Exchange (LME) that directly influences our earnings. If that gap exists, we have two routes: either ECB or Nalco (as an equity partner). We will take a call after the current financial year is over. However, we are inclined towards debt,” Ahmed said.

HCL has plans to invest close to Rs4,600 crore in the next five years to boost its copper ore output capacity from the present 3.4 mt to 12 mt. It earlier floated tenders for engineering, procurement and construction  contracts for expansion of Khetri, Surda, Malanjkhand and Chapri-Sideshwar mines and reopening of the Rakha and Kenadadih mines and last month awarded contracts for most of them.

This capex plan is no more dependent upon its FPO plans as the company will no longer issue fresh shares to the extent of 10% of pre-issue equity along with government’s disinvestment. The revised plan involves just a sale of 10% of the government holding of 99.59% in the company.

“We have delinked our expansion plans from the FPO as we wouldn’t be issuing any new shares and only the government will divest its own stake and the proceeds would go to them. When we initiated the FPO process, LME prices were at $6,000 a tonne; we hardly had any reserve. Now we are very well off,” Ahmed said. Debt funding is being preferred over equity infusion as government, being a majority stakeholder, expects high dividends, while an ECB loan would come at a far cheaper cost.

“An ECB loan without hedging comes at a cost of just 4-5%. If you hedge your foreign exchange exposure interest rate would be 9%. For ECB, we don’t have to hedge our exposure so we save on that cost. This is because our revenues have a natural hedge as they are linked to LME copper prices,” Ahmed said.