The steel major said an indirect unit in UK would refinance bank debt incurred on the company’s $13 billion acquisition of Britain’s Corus in 2007 through a term loan and revolving credit facilities of €3.05 billion. Photo: Bloomberg
The steel major said an indirect unit in UK would refinance bank debt incurred on the company’s $13 billion acquisition of Britain’s Corus in 2007 through a term loan and revolving credit facilities of €3.05 billion. Photo: Bloomberg

Tata Steel refinances international debt portfolio

The firm said two of its indirect units had executed agreements to refinance and term out its international debt portfolio of $5.4 billion

Mumbai: Tata Steel Ltd said on Thursday that it had executed agreements to refinance its international debt portfolio of $5.4 billion, as it seeks to reduce interest costs on loans taken to finance the 2007 acquisition of Corus Group Plc.

One of its units, Tata Steel UK Holdings Ltd, refinanced its bank debt through a term loan and revolving credit facilities of €3.05 billion, the company said in a statement to the BSE.

The new financing structure consists of a five-year loan of €370 million, a six-year revolving credit facility for working capital of £700 million and a seven-year loan of €1.8 billion, with more favourable terms and pricing relative to the earlier debt, the company said.

A second unit, Singapore-based Tata Steel Global Holdings Pte Ltd, accessed loan facilities of $1.5 billion comprising a five-year loan of $700 million and a seven-year loan of $800 million.

The proceeds of this loan will be used to repay term debts, converting working capital loans into term loans and fund investment needs of the Tata Steel group outside India.

“The financing structure has been designed with flexible terms and better pricing that will provide financial headroom to the international business, especially in Tata Steel Europe, in the coming years," chief financial officer Koushik Chatterjee said.

Tata Steel is seeking to cut the cost of servicing debt it acquired for the $12.9 billion acquisition of Corus Group by taking advantage of a drop in borrowing costs as investor sentiment around India improves.

“The new loan facilities are being put in place well ahead of any material maturities of the existing debt structure of the Tata Steel Group," Chatterjee said.

The five-year loan and revolving credit facilities for Tata Steel UK as well as the loan facilities for Tata Steel Global have been contracted as part of a joint $3.1 billion mandate to 18 lead arrangers.

These arrangers include Australia and New Zealand Banking Group, Bank of America Merrill Lynch, Mitsubishi UFJ Financial Group, BNP Paribas SA, Citibank NA, Credit Agricole SA, Deutsche Bank AG, HSBC Holdings Plc., Standard Chartered Plc. and Axis Bank Ltd.

The seven-year loan of €1.8 billion for Tata Steel UK has been contracted with a set of seven mandated lead arrangers: State Bank of India (SBI), ICICI Bank Ltd, Bank of Baroda, Bank of India, Exim Bank, Syndicate Bank and SBI (Mauritius).

“Along with the recent bond issuance of $1.5 billion completed in July this year, this marks the completion of the restructuring and refinancing of the entire international debt portfolio and de-risking of the capital structure of the Tata Steel Group," Chatterjee said.

“The overall capital structure and the consolidated leverage level will remain unaffected by this financing while the cost of the same will be lower," he added.

A metals industry analyst said investors would give a thumbs up to the refinancing, especially as it comes on the back of a decision by Tata Steel to sell its long products manufacturing unit in Europe.

“Both these pieces of news are a positive and the shares should react positively tomorrow," said Goutam Chakraborty, metals analyst at Emkay Global Financial Services Ltd. “The Libor itself has come down so this was the right time to undertake the refinance to bring down the interest rate."

Libor is short for the London inter-bank offered rate, a benchmark for borrowing costs.

But the fundamental problems of a weaker-than- anticipated economic recovery in Europe and over-capacity continue to dog the company.

“Three to four months ago, looking at the data in Europe, everybody was imagining a gradual and sustained recovery in Europe. But clearly now it looks as if that is not the case," Chakraborty said.

In an interview in August after the bond issuance, Chatterjee said the company had seen a window of opportunity for fund raising at the time as global liquidity was good and investor appetite for debt was high.

The company, with consolidated net debt of 81,608.65 crore at the end of fiscal year 2014 (debt to equity ratio at 1.93), is likely to save between 25 and 30 basis points on interest costs, Chatterjee indicated in August. One basis point is one-hundredth of a percentage point.

Tata Steel Ltd shares lost 3.57% to close at 439.85 per share on Thursday on the BSE, while the benchmark Sensex fell 1.33% to close at 25,999.34 points. The BSE Metal Index shed 2.28% to close at 10,836.89 points.​

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