Mumbai: Tata Steel, the world’s No. 7 steelmaker, will raise up to $800 million by the end of January, sources told Reuters on Tuesday, after the company said it would launch a follow-on public offer (FPO).
The company said it would issue 57 million new shares in a public offer, but did not give details of when it would hit the market or how much it was planning to raise through the offering.
Based on Tata Steel’s closing price on Tuesday, the offer would be valued at Rs3,700 crore ($819 million).
“It is one of the cheapest stocks in the sector. We think it (public offer) will be fully subscribed, we are bullish on the stock,” said Rakesh Arora, sector analyst for Macquarie Securities in Mumbai.
The sources said Tata Steel was awaiting regulatory approval for the offering and would hold a news conference next week to provide details of the share offering. They declined to be identified because details of the deal were not public yet.
A Tata Steel spokesman declined to comment.
Last month, Tata Steel said it received shareholders approval to raise $1.5 billion, and its managing director later told reporters the company would decide the form of fundraising in a few weeks and raise the money by March 2011.
The proceeds of the issue will be partially used to reduce the company’s debt, which is currently around $10 billion and limits its ability to make big investments. It has targeted cutting its debt-equity ratio to 2.5 from 2.8.
Tata Steel plans to invest $500 million in its European operations, to improve supply chain and efficiency.
Q3 margins hit
Separately, the steelmaker said it expects operating results for the quarter ended December to decline compared with the preceding quarter, joining the ranks of global steelmakers impacted by rising raw material prices and weak demand.
Tata said global sales volume declined marginally in the quarter, hurt mainly by an 8% year-on-year volume decline at its European operations.
European unit Corus, which it acquired in 2007 for $13 billion, accounts for two-thirds of its global capacity of around 30 million tonnes. Its growing Indian operations contribute a quarter of total capacity and the rest comes from units and joint ventures in Thailand, Singapore, Vietnam and Philippines.
“Improvements in financial performance of the first half of FY11 could not be maintained as higher raw material prices and reduced apparent demand due to seasonal slowdown, adversely affected margins at European operations,” Tata Steel said in a statement.
Shares in Tata Steel, valued at $13 billion by the market, closed down 0.5% at Rs647.60 in a weak Mumbai market.