Tata Steel meet today on fund raising plan

The board meeting of Tata Iron & Steel Co scheduled for January 20 to consider a proposal for raising of additional long term resources for the company's various growth projects is likely to discuss a debt related instrument like a partially convertible debenture with conversion options for investors, market sources said here today.

Sources in the market said Tata Steel was likely to come out with a innovative debenture issue.

"A portion of the debenture will be converted into equity at a predetermined rate after say 2-3 years. The remaining part will bear a coupon rate of 7-8 per cent. This would reduce the capital servicing burden for the company. There could be a combination of rights and debentures too," said sources.

They said that in case of rights issue Tisco would have to service a additional equity capital and so the debenture route was more attractive.

Tisco has several growth projects in hand.

Tisco plans to expand its existing steel plant at Jamshedpur from close to 4 million tonnes at present to 7 million tonnes of steel and set up a 6 million tonne steel plant at Duburi in Orissa.

The company was also looking at acquisitions overseas as well as in the domestic space.

It recently acquired a value added steel products manufacturer in Singapore and was looking at other units.

A top NSE broker, however, said there was strong "news" that Tisco is preparing 1:2 or 1:3 rights issue.

"The rights issue will reward existing shareholders as we believe that the stock is quite undervalued at the present level," he said.

The price earning ratio of Tisco at the current level is only 7.2, which is much lower than the average P/E of 12.3 of the market as a whole.

Tisco scrip was now hovering at around Rs 340-347 level.

It went up to Rs 390 in December 2004 but then suffered a series of set back in first and second week of January this year.

Market experts believe that a rights issue will also help Tisco to get a higher P/E ratio and a better value of the share.

South African scrutiny: Meanwhile, a report in the South African online Business Report said a draft environmental impact report for Tata Steel's proposed 240 000 tons per annum ferro chrome smelter in Richards Bay will come under scrutiny at a public meeting late on Wednesday, where opposition to the smelter is expected be aired.

According to the website report, one resident of the area said this was one of the most controversial projects in Richards Bay in years.

Concerns that were raised in stakeholder meetings were about air pollution, the location of the smelter within the Richards Bay industrial development zone (IDZ) and pressure on the area's infrastructure.

The Richards Bay Residents' Association was not available for comment yesterday.

Tata Steel identified a number of potential locations for the smelter, including Gladstone in Australia and Becancour in Canada. The decision to proceed with Richards Bay was based on the availability of electricity, water, infrastructure, port facilities and labour.

If given the go-ahead by provincial authorities, the first phase will be commissioned next year. The second phase will start in 2008 and the smelter will be at full capacity in 2009.