Tata Steel is planning a $1.5-billion GDR issue in London to part-finance the Corus takeover, according to a report in Financial Times. The company may also consider other options, including a domestic equity issue, the report adds.
Tata Steel has to pump in $4.1 billion into its subsidiary Tata Steel UK as equity component to finance the transaction. Tata Steel has already raised a part of this money through a preferential issue to Tata Sons and internal resources. Using these funds, Tata Steel UK acquired a 21.1-per cent stake in Corus Group on Wednesday for nearly $2.2 billion.
There is speculation that fund infusion into Tata Steel UK would go up to $5 billion to bring down the debt component. Tata Steel would prefer to limit its own borrowings in order to keep its debt to equity ratio low. Higher leverage would affect the funding plans for its greenfield plants in future. Tata Steel is planning to set up three integrated steel mills in India with an aggregate capacity of 23-million tonnes besides doubling capacity at its Jamshedpur plant to 10 million tonnes. These projects may require investments in the region of $20 billion over the next decade.
Meanwhile, there are reports that the Iranian government has approved Tata Steel's plans to set up a 3-million tonne integrated steel mill in that country. The plant would see an investment of nearly $1.5 billion and would use iron ore from local mines. The capacity of this plant can be scaled up to 5-million tonnes later and it is widely expected that crude steel produced here would be shipped to the European units of Corus.
Though the company announced the Iranian venture nearly two years back, there was considerable scepticism whether the company would proceed with its plans because of the volatile political climate in the region. If the stand-off between Iran and West over the country's nuclear enrichment programme leads to wide ranging economic sanctions, the Tata Steel project may also be affected.
also see : Tata Steel acquires
21.1-per cent stake in Corus for $2.4 billion