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Tata Steel to raise Rs 18K cr for new plant

To fund 6 million tonne greenfield steel unit in Orissa

In what will be the largest fund-raising exercise by an Indian corporate in a long time,Tata Steel plans to hit the loan market for close to Rs 18,000 crore.

The steel maker will mop up money,via the project finance route,to fund its six million tonne greenfield steel plant in Kalinganagar,in coastal Orissa. Bankers say the loan,which will have a tenure of between seven and ten years,could cost the steel maker around 11 per cent plus in interest. Tata Steel now commands a rating of AA,awarded by CRISIL; on August 8,2012,Moody’s Investors Service changed the outlook on the Ba3 corporate family rating of the company to negative from stable. Moody’s also downgraded the corporate family rating of Tata Steel UK Holdings Limited to B3 from B2.

According to Koushik Chatterjee,group chief financial officer (CFO),the company is progressing on the financial closure of the Orissa greenfield project with domestic financial institutions and also with foreign lenders. “As a stated policy we look at overall cost of financing on a fully swapped rupee basis to optimise the cost of capital,” Chatterjee said.

The CFO added that Tata Steel’s focus on the capital structure remains around 1:1 net debt to equity which is currently the case. “The final debt drawdown will depend on the extent of the internal accruals of the company over the next few years even though the initial commitment may be high to provide certainty to project execution,” he observed. Tata Steel,which ranks among the top steel makers globally,has a consolidated net debt has of $9.7 billion currently compared with $8.5 billion at the end of March,2012.

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The CFO emphasised that the project financing would be done through a judicious mix of internal accruals and to the extent external debt is necessary. “The advantage of a greenfield financing is that the requirement of capital is over the period of the construction of the project which is a multi year programme,” he explained. This has been the case for the recent three million tonnes per annum expansion in Jamshedpur which had a high initial debt commitment but has been almost funded out of internal accruals and equity. In January,2011,the firm picked up Rs 3,477 crore through a follow-on public offering (FPO) at Rs 610 per share.

Bank of Amercia Merrill Lynch estimates that cash flows from operations at Tata Steel would fall to Rs 9,900 crore this year from Rs 11,283 crore in 2011-12. The company’s net debt to equity ratio was lower at 107 per cent at the end of March,2012,compared with 131 per cent at the end of March 2011.

First published on: 23-08-2012 at 00:27 IST
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