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Business News/ Companies / News/  Tata Steel plans to raise $3.2 billion for debt repayment, capex
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Tata Steel plans to raise $3.2 billion for debt repayment, capex

The firm is said to raise funds via a combination of a bond issue and loans, which will be funded by banks

Tata Steel, India’s largest steel maker with a capacity of 29 million tonnes, has to repay `3720 crore in 2014 and `29,682 crore in 2015.Premium
Tata Steel, India’s largest steel maker with a capacity of 29 million tonnes, has to repay `3720 crore in 2014 and `29,682 crore in 2015.

Mumbai: Tata Steel Ltd has started the process of raising foreign currency debt for loan repayments and capex for its new plant in Odisha, said four bankers aware of the transaction.

One banker said the amount to be raised would be as large as $3.2 billion. A Bloomberg report published on Monday also said Tata Steel was looking to raise $3.2 billion, citing people familiar with the development. The bonds will be issued by Singapore-based ABJA Investments Co. Pte Ltd, a wholly owned subsidiary of Tata Steel, and will be “unconditionally and irrevocably guaranteed" by the India based company, Fitch Ratings said in a note on Monday.

A questionnaire sent to the company on Monday did not elicit a response.

Twelve banks, Australia and New Zealand Banking Group Ltd (ANZ), Bank of America-Merrill Lynch Ltd, BNP Paribas SA, Citigroup Inc, Credit Agricole SA, Deutsche Bank AG, Hong Kong and Shanghai Banking Corp. Ltd (HSBC), Morgan Stanley, Rabobank International, Royal Bank of Scotland Group Plc, SBI Capital Markets Ltd and Standard Chartered Plc have been mandated to manage the sale for which roadshows across Asia and Europe started on Monday. “The roadshows for the bond sale started on Monday and bankers are meeting investors in Asia and Europe. They will look to close the issue before the end of the week and raise money depending on investor appetite. Right now, they are looking at raising at least $1.5 billion (in bonds)," said one of the bankers.

A second banker said the fund raising will be a combination of a bond issue and loans which will be funded by the banks. “It is a combination of bonds and loans and not a pure-play bond," said the second banker. None of the bankers agreed to be named.

Interestingly, each of the 12 banks was asked to commit funds upfront as a way to underwrite the issue.

“All the 12 bankers in the deal were asked to commit on the amount of loans they can give before getting the mandate. Each of the banks will give at least $270 million to $290 million to Tata Steel which in itself will add up to a big amount," said the third banker who bid for the mandate but is not part of the issue.

The funds would be raised in three currencies—US dollars, euros and British pounds, added the Bloomberg report. Mint could not independently verify the currencies in which the debt would be raised.

“There is a possibility that they will raise the money in three currencies but that will depend on investor appetite," said the fourth banker.

Tata Steel, India’s largest steel maker with a capacity of 29 million tonnes (mt), has to repay 3,720 crore in 2014 and 29,682 crore in 2015, according to Bloomberg data. The company, had net debt of 70,526.27 crore as of 31 March 2014 and a debt-to-equity ratio of 1.93.

In April, Tata Steel informed the BSE that the company intended to seek approval for increasing its borrowing limit to 70,000 crore from 50,000 crore, or the aggregate of the paid-up capital and free reserves of the company, whichever is higher.

“Whatever they require, they will be able to raise," said Giriraj Daga, senior research analyst at Nirmal Bang Equities Pvt Ltd. “For them raising debt was never an issue."

Separately, Standard & Poor’s Ratings Services (S&P) said on Monday that it had revised its outlook on Tata Steel to “stable" from “negative". “Our outlook revision reflects our expectation that Tata Steel’s operating performance will improve over the next three years," said S&P’s credit analyst Vishal Kulkarni. “We expect a rise in steel output of 3.5-4mt over the next three years, from the current 8.5mt, from the company’s high-margin India operations to boost operating performance. At the same time, we expect the company to gradually strengthen its operating performance in Europe with the improving economic environment in the UK and eurozone," S&P said in the note while rating the issue at “BB" in line with the parent company’s rating.

Tata Steel is scheduled to commission the first phase of its 6mt greenfield plant in Odisha at the end of this fiscal year—a crucial move for the company as it has to expand its capacity in line with the outlook for rising steel demand as well as to keep pace with its competitors.

In India, the company has only one operating plant—the 107-year-old Jamshedpur plant—but it also acquired the UK’s Corus Group in 2007 for $12 billion, a purchase that was ill-timed ahead of the global economic downturn in 2008.

Since then, Tata Steel has announced a write-down, sold off non-core assets and cut staff in a bid to reduce losses. The company has also been trying to refinance some of its expensive debt.

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Published: 21 Jul 2014, 03:48 PM IST
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