labels: industry - general, tata group, tata steel
Mittal Fear: Tata Sons to raise Tata Steel stakenews
05 July 2006

The successful acquisition of Arcelor by Mittal Steel has instilled the fear of hostile takeovers among promoters of large Indian steel companies as well. Tata group has announced that group holding company Tata Sons would increase its shareholding in Tata Steel to ward off hostile takeovers.

Tata Steel is the most efficient steel producer globally and would be a very attractive acquisition target for any of the global majors. Immediately after the completion of Arcelor-Mittal deal, L N Mittal had announced that his company would be focusing on expansion opportunities in countries like India and China – including acquisitions. (Also see: Arcelor-Mittal: could Tata Steel be a target in India?)

Addressing shareholders at the Tata Steel AGM in Mumbai today, Tata Group chairman Ratan Tata said the global steel industry would see more consolidation as the industry remains fragmented even after the recent mergers.

Tata told the shareholders that the only safeguard against hostile takeovers was to increase promoter's shareholding, to protect the interests of the company.

Current holdings of Tata group in Tata Steel are barely above 26 per cent, the minimum requirement to block special resolutions. Tata Sons currently holds 20.04 per cent of Tata Steel while group company Tata Motors holds 4.66 per cent. Other group companies hold the remaining 2.09 per cent

It is expected that Tata Sons would raise its stake by another 10 per cent in Tata Steel by subscribing to preferential issue of equity shares.

The preferential issue would be made at over Rs500 per share which would entail an investment of around Rs2,500 crore by Tata Sons. It is unlikely that the entire 10 per cent would be issued in one go, considering the amount of funds required.

Tata Steel has very aggressive expansion plans for the next decade and has set itself the target of becoming one of the top steel producers globally. The company has plans to set up large steel plants in the states of Orissa and Jharkhand besides expanding capacity at its existing units. The company is also considering new units in countries like Bangladesh and Iran.

AGM highlights
Tata also told the shareholders that Tata Steel has earmarked capex of Rs70,000 crore over the next 10 years. For the next two years, he said the spending would be Rs500 crore.

Tata Steel has also planned to raise about Rs 6,500 crore through a preferential issue over the next two years.

Of this amount Tata sons will put10 per cent. This fund would be used for expansion in Jamshedpur, acquisitions and also to meet the requirements of three greenfield projects in Orissa, Chhattisgarh and Jharkhand.

The Jamshedpur plant, Tata said will be expanded and it will have a capacity of 1.8-million tonne per annum.

The company has announced a dividend of 130 per cent.

also see : Arcelor-Mittal: could Tata Steel be a target in India?

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Mittal Fear: Tata Sons to raise Tata Steel stake