Tata Steel to raise $500 million loan
Business Standard — March 31, 2006

The country's second largest integrated steel company, Tata Steel, is raising a $500 million equivalent seven-year senior unsecured bank loan facility in yen to fund production capacity expansion and also acquisitions.

Tata Steel's capital expenditure is expected to be considerable at about Rs 9,000 crore in the three years to March 2008. Tata Steel has finished steel capacity of 5 million metric tons per year (mmtpy).

The borrowing has been assigned "BBB" rating by global rating agency, Standard & Poor's.The loan facility comprises $5 million and yen quivalent of $495 million.

"The rating on Tata Steel reflects its globally competitive position in the steel industry, its fairly diverse product mix, and its overall moderate financial profile. The rating, however, remains constrained by the inherent industry risk and large capital commitments for its steel operations," said S&P's credit analyst, Nancy Koh.

A large part of the capital expenditure will be used to expand capacity by 1.8 mmtpy, and to construct a deep-sea port and a new coke oven plant. As the expansion project will be completed by 2008, incremental revenue from this expansion is only expected to come on stream over 2008-2009. The company's internal funding in the medium term should remain dequate, with the ratio of net cash flow to capital expenditure projected to average above 100 per cent.

S&P said although the company is expected to take on additional debt to fund its capacity expansion, Tata Steel's gearing is expected to remain moderate, averaging below 40 per cent over the next few years. For the nine months ended December 31, 2005, Tata Steel reported revenues of Rs 12,540 crore and net profit of Rs 2,720 crore.
"The stable outlook reflects the expectation of a successful expansion of Tata Steel's domestic operations, which should strengthen future cash flows and provide some cost savings due to economies of scale," said Koh.

"However, a sharp downturn in the steel industry cycle, or decline in cash flow protection measures due to increased dependence on external debt for capital expenditure or acquisitions could weigh on the ratings."