BoI lends $200 mn for Corus buyout

Bank of India (BoI) has lent $200 million to Tata Steel UK, Tata Steel's special purpose vehicle for the Corus acquisition, to enable the Tata Group to refinance part of the $7.2 billion bridge loans taken for the buyout.

"We have taken an exposure in Tata Steel. We have given about $200 million," said Bank of India Chairman and Managing Director T S Narayanasami.

SBI and BoI have taken the exposure to the biggest buyout ($12.9 billion) by an Indian company through their overseas branches.

State Bank of India (SBI), the country's largest lender, had earlier agreed to give a loan of $2.5 billion, coming to Tata Steel's aid after the company was unable to raise funds from foreign banks, which turned risk-averse following the US sub-prime mortgage crisis.

Tata Steel was looking to raise funds at 1.5 percentage points over the six-month London inter-bank offer rate (Libor) before the sub-prime crisis, SBI and Bank of India have lent additional funds to the Indian conglomerate at close to 2.5 percentage points over the benchmark Libor.

"The average yield on the loan to Tata Steel would be 2.5-2.6 percentage points over Libor. The net spread would be around 1.5 percentage points," said a senior banker. The six-month Libor closed at 5.13 per cent on Tuesday.

In August, Tata Steel had to agree to pay 50 basis points more on a $1-billion, seven-year loan as the banks participating in the loan syndication bargained with the underwriters for higher yield.

The loan's underwriters were ABN Amro, Citigroup and Standard Chartered. There has been as much as 200 basis point increase in credit spreads on Indian loan and bond issues since the last week of July, when the sub-prime crisis first struck international credit markets.