Tata Steel raising $2.3 billion for Corus payment
Hindu Business Line — April 18, 2007

In what is dubbed as the biggest fund-raising exercise by an Indian company, Tata Steel is gearing up to raise $2.3 billion (about Rs10,000 crore) in the coming few months to part finance its $12.9-billion acquisition of Anglo-Dutch steel maker Corus. The money is being raised through two rights issues and an overseas issue.

The $2.3 billion that Tata Steel will be raising is part of the company's committed equity contribution of $4.1 billion (Rs17,750 crore) for the Corus acquisition. The remaining $8.8 billion will be financed through a non-recourse debt arranged by a consortium of banks for $6.14 billion at Tata Steel UK (the SPV for the buy-out) and the balance $2.66 billion raised in the form of bridge finance by its subsidiary Tata Steel Asia Singapore.

Tata Steel maintains that its contribution of $4.1 billion for the acquisition will not affect its own greenfield and brownfield projects in India, as its own cash flows are "robust enough". The company also feels that its financials are not getting stressed in the wake of the ongoing fund raising exercise.

Raising money
B Muthuraman, managing director, told newspersons that "for the acquisition, Tata Steel will be utilising an additional debt of only about Rs2,170 crore, which represents only 12 per cent of the total amount required (for the acquisition)."

Out of its share of $4.1 billion, Tata Steel has already invested about $1.8 billion (Rs7,900 crore). This was made through internal generation of $700 million (Rs3,000 crore), external commercial borrowings of $500 million (Rs2,170 crore) and funds from the preferential issue of equity shares to Tata Sons at an average price of Rs499.7 per share that fetched $640 million (Rs2,770 crore).

The Tata Steel board, which met on Tuesday, approved the two rights issues and a foreign issue that would enable it to raise the remaining $2.3 billion of its committed contribution.

The first issue of shares to its shareholders will be in the ratio of 1:5 at a price of Rs300 per share that would fetch $862 million (Rs3,655 crore). The board also approved a simultaneous but un-linked rights issue of convertible preference shares in the ratio of 1:7, having a coupon rate of 2 per cent with conversion into equity shares after two years at a price in the range of Rs500 to Rs600 per share, as may be determined at the time of the issue - this issue is expected to provide a total amount of $1,000 million (Rs4,350 crore).

For both the issues, Tata Sons would stand-by to take up the unsubscribed portion of the issues in fulfilment of its support to Tata Steel for the Corus acquisition.

Besides these, the company will go in for a foreign issue of an equity-related instrument up to an amount of $500 million (about Rs 2,100 crore, including the premium). Muthuraman said the exact form of the foreign issue has not been decided yet, but it could be even GDRs or ADRs.

He expected the rights issue to hit the market within the next three or four months, with the process slated to start shortly. The overseas issue will be taken up only after the rights issue.

Tata Steel, which has a long-term plan of keeping its debt:equity ratio at 1:1, may have to bear with a higher ratio in the immediate term. But, the company is confident that it will come down to the targeted level within two years of consolidation.