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Tuesday, May 19, 2009

Tata Steel gets Rs 2k-cr LIC loan

Loan Will Help The Co Infuse More Equity Into Its UK Subsidiary

TATA Steel has secured a Rs 2,000-crore loan from Life Insurance Corporation, which will help the world's fifth-largest steel producer make additional equity infusions into its UK subsidiary. LIC, India's largest financial institution, will subscribe to Tata Steel's non-convertible debentures (NCD) that carry an interest rate of 10.5%, said an official with an institutional investor, requesting anonymity. Tata Steel plans to raise Rs 3,000 crore through the NCD issue.
    Rating agency Fitch has placed Tata Steel's bonds at AA Ind, indicating low risk of default. The proceeds of the NCD, along with the existing cash balances available with Tata Steel, will be used to enhance the capital base of Tata Steel UK. Tata Steel's UK unit will use part of the amount to prepay some of its debt obligations and the balance will be retained within the business, keeping the consolidated net debt levels unchanged. Apart from LIC, some other government-owned insurance companies are also investing in Tata Steel's NCD, said the official.
    A Tata Steel spokesperson declined to comment on the matter. LIC officials confirmed that some funding support was being provided, but did not comment on the size of investment. LIC, which already holds an 11.68% stake in Tata Steel, is the second-largest shareholder in the steel maker after the Tata Group. On Tuesday, Tata Steel stock closed at Rs 329 a share, up 3.8% over Monday's closing.
    ET had reported on May 13 that Tata Steel is planning to prepay about Rs 1,500 crore of the non-recourse debt that it took to acquire Anglo-Dutch steel major Corus in 2007. The plan to prepay the debt is part of Tata Steel's efforts to derisk its European operations in the face of tough conditions in the steel market.
    The non-recourse debt of around Rs 27,525 crore was borrowed on Corus' books in July 2007, and was vital in completing the acquisition of the Anglo-Dutch steel company that also catapulted Tata Steel into the league of the world's largest steel makers.
STRICT REGIMEN
LIC will subscribe to Tata Steel's non-convertible debentures that carry an interest rate of 10.5% The proceeds of the NCD will go into enhancing the capital base of Tata Steel UK Part of the amount will be used to prepay non-recourse Corus debt



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