New Delhi: Tata group company Tata Steel is coming out with a mega rights issue of about Rs10,000 crore to repay the ‘bridge loans’ raised for funding acquisition of British steel behemoth Corus.
“The proceeds will be used to repay bridge loans taken for acquisition of Corus. Tata Steel UK has raised 3.15 million pounds of debt for financing the acquisition,” a Tata Steel spokesperson told PTI.
The issue, opening on 22 November, will include 12.18 crore shares of Rs300 each to be issued on rights basis in the ratio 1:5 and Cumulative Compulsory Preference Shares (CCPS) of Rs100 to be converted into equity on 1 September, 2009, he said.
The issue will close on 21 December, the spokesperson said, adding the record date for the issue was 7 November, 2007.
According to the Draft Letter of Offer filed with the Securities Exchange Board of India (Sebi), the rights issue will fetch Rs3,654 crore while CCPS will bring in Rs6,000 crore.
The company’s overall borrowings during 2006-07 increased by over 600% from Rs3,377 crore to Rs24,926 crore “principally in connection with its acquisition of Corus and expenditure in connection with other acquisitions and expansions,” said the document.
Tata’s decision to raise funds from rights issue will result in enlargement of its equity by 20% after the rights issue and 35% after conversion of CCPS into equity.
The enlargement of equity base may impair Tata Steel’s ability to maintain a high rate of dividend to its shareholders.
Tata Steel, whose credit rating was downgraded by international agencies, did not opt for grading of its mega rights issue.
When asked why Tata Steel did not prefer grading of its rights issue, the company’s spokesperson said, “grading of rights issue is not mandatory.”
The spokesperson, however, said credit rating agencies have downgraded rating of the company “due to increased debts on consolidated balance sheets of Tata Steel as well as the bridge loans taken by the company for acquisition of Corus which will come up for repayment in the next few months.”
He also said the short-term bridge loans will be repaid from the rights issue and convertible preference shares which are being offered to the company’s shareholders.
The spokesperson added that Corus is a 100% subsidiary of Tata Steel and hence the financial performance of its UK subsidiary will be reflected in the consolidated financial results.
Although he said the financial results of Corus for six months ending September have not been declared, a scrutiny of the Draft Letter of Offer reveals that the net profit of Corus slumped to 229 million pounds during 2006 from 451 million pounds in the previous year.