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Tata Steel Ltd is tapping into the lowest foreign loan rates in six years to cut the cost of debt that funded its 2007 takeover of the UK's Corus Group.
India's biggest steelmaker is in discussions with banks to raise $3 billion to refinance borrowings that were used in the $12.9 billion acquisition, three people familiar with the matter said this month. Margins on local companies' non-rupee loans averaged 171 basis points this half, the lowest since 2008, compared with 197 in the six months ended December 31, according to data compiled by Bloomberg.
Tata Steel has returned to profit on reviving demand in Europe, after a record loss in the first quarter of 2013, and a new Indian government is boosting optimism that its domestic market will recover. Monetary easing by global central banks from the Federal Reserve to the European Central Bank has buoyed investor appetite for emerging-market debt, according to Aquarius Investment Advisors Pte.
"There's definitely a new-found optimism across the globe," A S Thiyaga Rajan, a senior managing director at Aquarius in Singapore, said in a phone interview on June 19. "Tata Steel's earlier debt is more expensive and its replacement will help straighten the company's bottom line." Indian companies raised $14.7 billion in foreign-currency loans in the first half, the most in such a period since 2011, as borrowing costs abroad fell even as those at home remained at the region's highest levels. Reserve Bank of India governor Raghuram Rajan has held the repurchase rate at eight per cent after raising it by 75 basis points, or 0.75 percentage point, from September through January to temper inflation. Policy rates are near zero in the U.S., Europe and Japan.
The yield on five-year AAA corporate notes in India rose 47 basis points since mid-2013 to 9.16 per cent, while that on 10- year government debt jumped 126 basis points to 8.7 per cent, data compiled by Bloomberg show. The average rate on Indian companies' dollar bonds dropped 99 basis points to 4.6 per cent, according to a JPMorgan Chase & Co index.
