Tata Chem raises $850-m debt to fund US buy
The Economic Times — March 28, 2008

Tata Chemicals (TCL) on Thursday announced that it has raised $850 million of debt to finance the acquisition of the US-based General Chemical Industrial Products (GCIP) for $1 billion.

With the fund-raising, TCL has completed the acquisition which helped it to become the world’s second-largest soda ash player with a 14% global market share. Solvay is the world’s largest soda ash company with a 19% market share.

The Tata group company has raised $500 million through a 6.3-year external commercial borrowing (ECB) programme while $350 million has been mobilised through a six-month bridge loan amid credit crunch in the international markets. TCL has agreed to pay London interbank offered rate (Libor) plus 1.35% rate of interest for the ECB while it will pay Libor plus 0.75% for the bridge. The bridge loan will be serviced by GCIP’s cash flows.

Post the fund raising, TCL’s debt-equity ratio stands at 1: 1.4, which is expected to come down to 1:1.1 next year. A battery of banks including ABN Amro, HSBC, Standard Chartered, Calyon Bank, Rabo and Mizuho have helped the company to raise debt.

In addition, TCL has monitised its investments worth $125 million in two group firms such as TCS and Tata Investment Corporation. While it has offloaded its shareholding in TCS in the open market, it sold its shares in Tata Investment Corporation to Tata Sons, the group’s main investment company. A kitty of $25 million has been set aside for investment in the next financial year.

Addressing mediapersons on Thursday, TCL managing director Homi Khusrokhan said the GCIP acquisition will give TCL another low-cost source of soda, insulating it from downturn risk. TCL’s soda ash mix is tilted in favour of natural soda with a 60% share while synthetic soda forms the remaining 40%. “ The integration of GCIP with TCL will take another two months. The acquisition is earnings accretive,” he added.

Interestingly, the announcement of the completion of the GCIP acquisition came a day after Tata Motors bought luxury car brands Jaguar and Land Rover from the US-based Ford for $ 2.3 billion.

TCL announced that it had entered into a definitive agreement to buy GCIP in January, exactly a year after the Tatas acquired Anglo-Dutch steel maker Corus for $12.9 billion, country’s largest overseas purchase. TCL bought GCIP from Capital Partners, majority stake holders.

GCIP produces natural soda ash which uses less energy, capital and raw materials than synthetic soda. It has facilities and mines in Wyoming in the US. It has 100 years of extractable trona ore, which can be converted into soda ash, from its mines in the US.

It also shares the Green River Basin with three other producers. It has a top line of $375 million now which is expected to grow to $400 million at the end of next year. EBITDA is expected to go up from $77 million now to $121 million next year.

This is the second major overseas purchase by TCL— the first was the acquisition of a part of Brunner Mond of the UK two years ago.

The Rs 6,000 crore TCL produces soda ash, cement, sodium bicarbonate and cooking soda. It’s the country’s biggest producer of salt. Its fertilisers division makes urea and phosphate. It posted net profit of nearly Rs 500 crore last year.

Its soda ash business generates 40% of its consolidated turnover. It has facilities in India, UK, Netherlands and Kenya.

The TCL stock closed flat at Rs 272.05 on Thursday.