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Tata Steel raising $2.15 bn to refinance existing debt

news
28 December 2017

Tata Steel Ltd has initiated the process of raising $2.15 billion in six-year syndicated loans as part of its $5.1 billion loan programme to refinance its existing debt, reports citing people close to the developments said.

Tata Steel Ltd has appointed a domestic investment bank to manage its proposed Rs12,800-crore about $2.15 billion rights issue, according to media reports.

Tata Steel board had, on 19 December, approved a plan to raise up to Rs12,800 crore via a rights issue and reduce the group's debt to equity ratio, which stood at 2.4x as of FY17.

The Indian steelmaker is seeking $2.15 billion in six-year syndicated facility to refinance loans in the books of TS Global Holdings Pte and NatSteel Asia Pte on an immediate basis, reports quoted unidentified sources as saying.

Tata Steel, which sold off its unprofitable assets in the UK and formed an alliance with Germany's Thyssenkrupp for its European operations, said last week it planned to raise as much as Rs12,800 crore ($2 billion) in a rights offer to add capacity in India as well as to repay debt.

The new fundraising will be backed by a letter of comfort from Tata Steel.

Tata Steel is also planning a separate 2.5 billion-euro borrowing to refinance debt remaining after the transfer of Tata Steel Europe Ltd's existing obligations into its proposed joint venture with Germany's Thyssenkrupp AG.

The rights issue was approved on the same day, as a plant to ramp up capacity at the company's Kalinganagar plant from 3 to 8 mtpa.

Tata Steel said in a stock exchange filing, the expansion would be to meet the requirements of automotive, general engineering and other value added segments. The proposed expansion is expected to cost ~Rs23,500cr.

The BSE group 'A' stock of face value Rs10 touched a 52 week high of Rs 734.9 on 30-Oct-2017 and a 52 week low of Rs377.45 on 27-Dec-2016. Last one week high and low of the scrip stood at Rs728.8 and Rs702 respectively.

We expect commencement of operations in new Kalinganagar plant (3MTPA) and strengthening steel prices to improve volumes and realisations. We expect government's various initiatives such as investment in infrastructure, affordable housing, etc to aid revenue growth.

Besides, emphasis on buying steel produced domestically for government projects under the new Steel Policy bodes well for the company.

Owing to these, we expect 10 per cent revenue CAGR over FY17-19E. Besides, it has closed pension restructuring programme in the UK, which is likely to result in saving of ~Rs1,30,000 crore.

Tata Steel expects increasing steel prices and expansion in higher margin domestic business to lift EBITDA margin by 140bps by FY19E. Recent spike in coking coal prices will not dent its margins, as ~36 per cent of coking coal is procured from its captive mine. Thus, we expect adjusted PAT to grow at 30 per cent CAGR over FY17-19E, the company stated.

Tata Steel is returning to the international loan markets for the first time since the middle of 2016 as it sharpens its focus on the Indian market after selling unprofitable assets in the UK.





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