CSN has $12 bn kitty for Corus

Two days after cornering its rival suitor Tata Steel in the race for Anglo-Dutch steelmaker Corus Group, Brazil's Companhia Siderurgica Nacional (CSN) today said it could raise its offer further.

A source at CSN, which had on Monday announced a $9.6 billion bid for Corus, against Tata Steel's $9.18 billion, said it had credit option of up to $12 billion for funding the acquisition.

The source, who did not wish to be named, told Business Standard over phone from Rio de Janeiro that CSN had lined up a $7.5 billion collateral.

The fund options also included a credit of $650 million to help Corus' cash flow. CSN had around $2 billion of loans available from Citibank and UBS, and it could also utilise $2 billion from its cash reserves to seal the deal.

However, the source said, CSN might not need to pump in its cash, given the many credit options.

Corporate observers in Mumbai, however, did not attach much significance to the disclosure. Describing it as "more of a posturing exercise," an investment banker said CSN wanted to influence Tata Steel by saying that it could bid up to $12 billion.

At the same time, he said, the Tata group was mature enough to formulate its strategy independent of the rival's finance options.

According to an analyst, Tata Steel could stretch its balance sheet to the extent of $10 billion, which would amount to nearly 550 pence a share, without hurting its shareholders' interest.

"If CSN offers anything beyond 550 pence a share, Tata Steel could walk away from the race with its break-up fee of $91 million," he added.

Some investment bankers felt the adjournment of the December-20 EGM, announced by Corus late last night, should give the Tatas more time to muster the support of shareholders.

CSN will come out with an information document on its 515-pence-a-share offer to Corus shareholders shortly, setting out details of the proposed acquisition.

The Corus stock was trading at 532.25 pence at the time of going to the press today, 0.47 per cent higher than yesterday's close, while the Tata Steel stock lost 1.08 per cent to end at Rs 435.65 on a strong Mumbai market.

CSN's formal offer on Monday topped its initial $8.4 billion informal approach and locks in a deal that allows Corus' pension trustees to feel more comfortable with the bid.

The Brazilian company's bid will be backed by the Goldman Sachs Group, Barclays Capital and ING Groep.

BNP Paribas, which had agreed to co-underwrite CSN's initial bid, is absent from the final line-up. It is learnt that the French bank had backed out because it was unhappy with the structure and the terms of the financing package.