Tata Steel likely to raise $1.5 billion to refinance debt

24 November 2015

Tata Steel is looking to raise at least $1.5 billion to refinance its bloated debt and reduce interest cost, several people aware of the development told ET.

The fund size could go up to as high as $3 billion. The proposed mobilisation done through the company's Singapore subsidiary would primarily be for Tata Steel Europe, earlier known as Corus, while balance sheet debt of others may also be refinanced.

"Tata Steel has a proactive approach to financing and seeks continuously optimise its debt based on market conditions," Tata Steel said in reply to an email seeking comment. "In this connection, we regularly interact with lenders, investors and other financial intermediaries and evaluate financing terms on an ongoing basis. There isn't any specific comment to make at this point."

As many as 10-15 local and global lenders have been mandated to raise funds which will mature in about six years and are linked to refinance the money the company had raised to finance its £6.2-billion acquisition of UK's Corus in 2007.

The interest rate would be between 70 and 100 basis points lower than the rate they are paying now. One basis point is 0.01 percentage point. "Repayment of the loan would be in four installments starting with 10 per cent in the third year, 20 per cent in the fourth year, 30 per cent in the fifth year and remaining in the final year," said another banker. The facility which opened in the first week of November is likely to close this week.

Tata Steel had acquired Corus Group in April 2007 for £6.2bn. Corus was Europe's second-largest steel producer with annual revenues of over £9.2 billion and a crude steel production of 18.2 million tonnes in 2005.

The new loan also benefits Tata Steel because it gives some leeway on the debt-toequity ratio to be maintained by the company during the tenure of the loan. The previous loan covenant did not allow Tata Steel to go beyond a 3.99 debt-to-equity ratio, a condition that has been relaxed in the new loan till 2020.

"Tata Steel's European operations reported revenue and underlying EBITDA of Rs 348 billion and Rs 4.4 billion, down 15 per cent and 77 per cent, respectively, for H1 FY2016 versus H1 FY2015," Moody's Investors Services said in a note.