Tata Steel bankers cut price of Corus loan

US SUB-PRIME FALLOUT HITS INDIA

Company to pay 50 bps more for $1 billion tranche.

Indian companies are beginning to feel the impact of the sub-prime loan crisis in the US markets.

Among the first to be impacted is Tata Steel, after bankers underwriting a loan to acquire Anglo-Dutch steelmaker Corus cut the price of one tranche of debt to be floated in the market to 99.25 per cent of face value from 100 per cent.

The steel-maker will now have to pay 50 basis points more on this tranche of $1 billion with a seven-year tenure. Tata Steel is mopping up $7.3 billion to fund its $13 billion-acquisition of Corus. The loan's underwriters are ABN Amro, Citigroup and Standard Chartered.

Koushik Chatterjee, Tata Steel's vice-president (finance), however, said the company's overall cost of borrowings would not go up. "We are re-tranching the entire loan, which will maintain the effective spread at around the original level," he said.

Tata Steel will also raise an additional $1 billion of six-year loans at an interest margin of 237 basis points and another $1 billion of five-year debt at 200 basis points above the London interbank offered rate (Libor).

Bankers and finance executives suggest other Indian companies may also now have to pay more on their overseas borrowings.

Brijesh Mehra, corporate and investment bank head of ABN Amro Bank, said the sub-prime loan crisis could raise borrowing costs for Indian companies. However, bigger companies were unlikely to face any problems in mobilising money overseas, he said.

Ravi Nedungadi, president and group CFO of UB Group, also said companies raising money between now and October might have to pay a little more for their borrowings. The UB group recently raised $1.2 billion in two tranches at 250-275 basis points over Libor.

Chanda Kochhar, ICICI Bank's deputy managing director, said the spread had widened a little but there was enough liquidity in the market and enough appetite for Indian paper.

According to Tata Steel's Chatterjee, the company has managed to scrape through the turmoil in the US credit market because nearly half the funding has come from Tata Steel and its subsidiaries and half from Corus's balance sheet.

"The borrowing is being treated as corporate credit rather than leveraged buyout financing," he explained.

The price of the debt offered to fund managers has been reduced to 99.25 per cent of face value from 100 per cent

Tata Steel's loan is the latest casualty of the rout in credit markets that has forced 48 companies to cancel $63 billion of loans and bonds since June 22