Tata Steel is set to go to the capital market to raise up to Rs 5,000 crore, via a follow-on public offer (FPO). An announcement is likely by January 19.
Sources said the company wished to raise between Rs 3,500 crore and Rs 5,000 crore from the share sale. Said one, “An announcement to this effect is likely to be made soon.”
Said another: “The company had done road shows in October and November for a share sale through the differential voting rights (DVR) route, but the investors did not show much interest in this issue, because of its discounted price.” Therefore, the company has decided to go for ordinary share sale, the source said.
Generally, a DVR issue is traded at a discount to the share’s market price. Another Tata Group company, Tata Motors, raised money through DVR in 2008 at Rs 305 per share, a discount of 10 per cent to the then share price. Today, Tata Motors’ DVR price on the Bombay Stock Exchange closed at Rs 726.80 per share, as against Rs 1,178.25 per ordinary share.
The banks advising Tata Steel on the share sale are Standard Chartered Bank, HSBC Holdings, Deutsche Bank, RBS and Kotak Mahindra Capital. An email to the company was not answered.
Tata Steel, in a board meeting on November 12, 2010, had approved raising of up to Rs 7,000 crore in long-term funds through a variety of routes, including ordinary share sale, shares with differential voting rights, global depository receipts, debentures and foreign currency bonds. The shareholders, in a postal ballot, approved the plan and the company made an announcement to this effect on December 24.
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The company is expanding its Jamshedpur steel plant to 10 million tonnes annual capacity from the current 6.8 mt and is expected to complete the plan by September 2011. The project size is Rs 13,000 crore and Tata Steel has finalised the debt component. The project is based on a 1.5:1 debt to equity ratio.
The company has also planned a six-mt steel plant at Kalinganagar, Orissa. The plant will be set up in two phases of three mt each. A five-mt plant in Chhattisgarh is also on the anvil. However, no timeline is indicated, as the land acquisition process is slow.
It has also signed an agreement with Nippon Steel for setting up an automobile-grade steel manufacturing unit for a total cost of Rs 2,300 crore and would be needing money to finance that plant. Tata Steel will have 51 per cent stake in the joint venture company.
Some of the funds may be used in paying off debt and de-leveraging the balance sheet. As on September 30, Tata Steel had a net debt of $10.7 billion and had refinanced debt taken for Tata Steel Europe, the erstwhile Corus. The company had signed an agreement with a syndicate of 13 banks for £3.53 billion of loans and a revolving credit facility.