Tatas up rights to repay Corus debt

To raise Rs 10,000 cr via equity, preference issue

Tata Steel is launching a rights issue of about Rs 10,000 crore to repay the bridge loans raised for funding acquisition of the Anglo-Dutch maker steel maker Corus for $12.9 billion (Rs 50,000 crore) in the largest M&A deal by any Indian company overseas.

The issue amount is nearly Rs 2,000 crore more than what the company had previously announced. "Although we have upwardly revised the quantum of the rights issue, the principle for the fund raising remains unchanged," the company's spokesperson said.

According to the draft offer filed with the Securities and Exchange Board of India, Tata Steel will offer equity shares as well as cumulative compulsory preference shares to repay the bridge loans it raised for financing the Corus acquisition which helped it to emerge as the world's sixth largest steel company from 56th rank.

The equity portion of the issue will raise Rs 3,654 crore, while the preference offer will mop up Rs 6,000 crore. Priced Rs 300 apiece, one equity share will be given to shareholders for every five shares they hold. The preference shares will be to be converted into equity on September 1, 2009.

In April, Tata Steel had announced the country's biggest fund raising plan of over Rs 10,000 crore through a combination of rights issue of equity and preference shares and an overseas listing of the company.

The rights offer of equity shares would raise Rs 3,655 crore, convertible preference shares would garner Rs 4,350 crore while a foreign issue would generate Rs 2,100 crore., the company had said.

The increase in the quantum of the rights issue did not mean the proposed overseas listing was cancelled, said a spokesperson. "We will go ahead with the overseas listing at the right time," he added.

The company's overall borrowings during 2006-07 increased by over 600 per cent from Rs 3,377 crore to Rs 24,926 crore "principally in connection with its acquisition of Corus and expenditure in connection with other acquisitions and expansions," said the document filed with Sebi.

Tata's decision to raise funds from rights issue will result in enlargement of its equity by 20 per cent and 35 per cent after conversion of preference shares into equity.

It will be Tata Steel's third rights issue in the last 22 years. The company issued 1:3 rights offer in 1988 and 2:5 offer in 1993. Tata Sons, the main promoters of Tata Steel, will subscribe the undersubscribed portion of these issues.

The promoters hold nearly 34 per cent stake in Tata Steel.