MUMBAI: Kumar Mangalam Birla will convert preferential warrants into equity in Aditya Birla Nuvo, a holding company for a raft of businesses such as telecom and financial services, earlier than the deadline for conversion which ends in December 2010.

The Aditya Birla group chairman will spend Rs 425 crore to convert 1.05 crore warrants into equity, raising his stake in the holding company by 5% to 51% and providing cash to grow the financial services business.

“Promoters converted 80 lakh warrants in October 2009. Similarly they may opt for an early conversion of the remaining warrants. It may happen very soon. The money will be used partly for funding the life insurance business,” said a senior executive close to the Aditya Birla group. Aditya Birla Nuvo plans to invest Rs 150 crore in the life insurance business.

Aditya Birla Nuvo had issued 1.85 crore warrants, with a face value of Rs 10 each, at a price of Rs 541 per share to the promoters on a preferential basis in June 2009 to raise Rs 1,000 crore.

Warrants entitle the holder to buy a specific number of shares at a fixed price, usually above the current market price at the time of issuance. Under Sebi guidelines, warrants can be converted within 18 months from the date of issue. Warrants have to be partly paid for when they are issued, with the balance paid at the time of conversion.

At the time of the allotment of preferential warrants in June 2009, Mr Birla had paid 25% of the amount, about Rs 250 crore.

In October 2009, he had spent Rs 325 crore to convert 80 lakh shares into equity, raising his stake in the company by 5% to 46%. “The infusion of funds not only helped in strengthening the balance sheet further but also in capturing the business growth,” said Sushil Agarwal, CFO, Aditya Birla Nuvo. The company’s share capital will increase to Rs 113.5 crore from Rs 103 crore after the proposed conversion.

Two years ago, Aditya Birla Nuvo had issued 2.08 crore warrants to the promoters at a price of Rs 2,007 per share in February 2008 but the promoters decided against converting the major part of these preferential warrants worth Rs 4,000 crore as the company’s share prices had fallen significantly.

“The earlier non-conversion of warrants had to be seen in the light of valuation matrix which changed considerably across the globe. One cannot time decisions based on the market’s volatility or attractiveness,” Mr Agarwal said. On Tuesday. Aditya Birla Nuvo shares posted modest gains to close at Rs 776 on the BSE.

Aditya Birla Nuvo is the holding company for the group’s telecom, financial services, BPO, IT-ITeS, garments and a few manufacturing businesses. The company is spending cash to ramp up its financial services business and also planning to set up a separate holding company for the financial services business, helping it to raise cash through equity sale to prospective investors at a later date.

The company earned a net profit of Rs 180 crore during the fourth quarter ended March 31, 2010 on better profits from manufacturing business and reduced losses in life insurance.