India's Mahindra's fund-raising plan trips shares

MUMBAI, May 5 (Reuters) - Shares in Mahindra & Mahindra Ltd , India's top utility vehicle maker, fell more than 2 percent on Monday on its fund-raising plans, but analysts said the slide was likely to be short-lived.

Mahindra, which earlier this year lost a bid to buy Ford Motor's Jaguar and Land Rover brands, said at the weekend it would raise 7 billion rupees ($173 million) from a placement of convertible debentures with a Goldman Sachs arm.

Each debenture, which will be converted into one share within 18 months of allotment, is priced at 745 rupees, a premium of 7.9 percent to Friday's closing share price.

The debentures on conversion will equal 3.7 percent holding in the Indian firm.

Analysts peg Mahindra's total capex at 70-80 billion rupees over the next three years as it adds capacity with an aim to double domestic sales and quadruple exports by 2010.

On Monday, the shares fell as much as 2.2 percent to 675 rupees in a firm Mumbai market, but analysts said they approved of its capital-raising plans.

"In these volatile markets, to get an equity partner and a price premium is very, very good," said Ramnath S, an analyst at IDFC-SSKI Securities, which has a "neutral" rating on the stock.

"Maybe, if conditions were better, they would have got a higher premium."

Kotak Mahindra Capital Co Ltd was the advisor on the deal.

India's benchmark share index is down about 13 percent so far this year, leading to a 26 percent decline in the number of equity offerings, including convertibles so far this year, according to data from Thomson Reuters.

Tata Motors , Mahindra's bigger rival, is borrowing $3 billion partly to fund its acquisition of the Ford brands, and analysts say Indian auto firms will raise money through a mixture of debt and equity for their aggressive capex plans.

Investors too, are opting to buy smaller stakes in companies as tight credit markets make larger acquisitions more difficult.

"The auto industry is capital-intensive, and given the soft demand for (commercial) vehicles, it may seem that they are stretching themselves now," said Ashutosh Goel, an auto analyst at Edelweiss Securities which has a "buy" rating on the stock.

"But they clearly have long-term goals which require these investments. And for Mahindra, borrowing would have been expensive in the current market conditions."

Mahindra earlier this year sold a 2 percent stake in group company Mahindra Holidays & Resorts to State Bank of India to raise 800 million rupees, and had bid for Jaguar and Land Rover along with buyout firm Apollo Partners.

It recently completed an acquisition of an Italian gear maker with private equity firm ICICI Ventures and has said it would scout for alternate sources of funds. ($1=40.5 rupees) (Reporting by Rina Chandran; Editing by Ranjit Gangadharan)

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