Mumbai: Tata Chemicals Ltd, the Tata group’s soda ash and fertilizer maker, on Monday said it has raised $300 million (about Rs1,500 crore) to retire a bridge loan taken in January to partly fund its $1.05 billion acquisition of Wyoming, US-based soda ash maker General Chemical Industrial Products Inc.
The fund-raising in the US comes amid a tight credit crunch, and could help lift the cloud over Tata Chemicals on account of its ability to service its debt in the coming years.
The stock has seen a substantial erosion this year on fears that the company would find it difficult to raise alternative funding to replace the bridge loan.
“It is the first transaction in the US after the collapse of Lehman Brothers,” P.K. Ghose, executive vice-president and chief financial officer, Tata Chemicals, said at a press conference.
Ghose declined to give details on the interest outgo, saying it may prejudice the efforts of other Tata group companies to raise similar funding to replace costly bridge financing arrangements made for overseas acquisitions.
One of the bankers involved in the deal said the fund was raised at London interbank offered rate, or Libor, plus 400 basis points. One basis point is one-hundredth of a percentage point. This person, who did not want to be named, said this is a good rate in the current market conditions.
The six-month overnight Libor, the interest rate at which banks lend to one another, was 2.575% on Monday.
“This will definitely be a benchmark transaction not only for our group but for all transactions coming out of India,” Girish Nadkarni, vice-president, finance, Tata Chemicals, told Mint on the sidelines of the press briefing.
Other group companies, Tata Steel Ltd, Tata Motors Ltd and Tata Power Co. Ltd, are also in talks to refinance their loans.
Tata Chemicals had funded the General Chemical acquisition in three tranches—$475 million raised through a five-year external commercial borrowing, $180 million through internal resources, and $350 million through a bridge loan.
Benchmark transaction: Tata Chemicals chief financial officer P.K. Ghose says the onus of servicing the debt now lies with the US subsidiary General Chemical and not with the Tata company.
The $350 million bridge loan was due for repayment in September, but the firm had asked for an extension of three months, which would have ended on 25 November.
Tata Chemicals will pay $50 million out of the $350 million bridge loan from internal resources.
The $300 million transaction to replace the bridge loan is significant as the onus of servicing the debt now lies with the US subsidiary General Chemical and not with Tata Chemicals, which was the guarantor of the loan, Ghose said.
The new loan is so structured that in November 2009, General Chemical would have to repay 10% of the loan, 12.5% in 2010, and 15% the subsequent year. The tenure of the loan will mature in 2014.
The loan is structured in a manner that will see the interest rate reducing as Ebitda (earnings before interest, taxes, depreciation, amortization) margins increase, Ghose said.
Banks involved in the transaction, led by Standard Chartered Bank, included ABN Amro Bank, ANZ Banking Group, HSBC Bank, Calyon and State Bank of India.
On Monday, Tata Chemicals’ share price rose by about 2% on the Bombay Stock Exchange (BSE) to end at Rs140.55, before the announcement was made, a 67% drop from Rs423.30 on 1 January. The Sensex, BSE’s benchmark index, was nearly flat at 8,903.12 points on Monday. It has fallen by at least 56% this year.
In a recent communique to all the 96 chief executives of the Tata group, Ratan Tata, chairman of Tata Sons Ltd, the main holding company of the group, had asked them to “...draw down all loans/lines of credits from banks and institutions to the maximum extent possible...(and)... expeditiously finalise pending loan and funding agreements, even if they involve accepting higher interest rates”.
Tata, in his letter dated 6 November, referring to the liquidity problem and slower consumer demand, had feared that this scenario may not improve substantially for the next 12 months.
“Accordingly, I believe that each of our companies needs to undertake a critical review of their cash flow requirements business plans with defined strategies... Failure to manage this crisis could result in irretrievable positions,” Tata warned his chief executives.
Ghose also reiterated at the meeting that Tata Chemicals has put on hold the expansion of its soda ash plant in Mithapur in Gujarat to 1.2 million tonnes a year from 975,000 tonnes because of the global economic slowdown.