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Business News/ Companies / News/  Tata Capital to redeem 500 crore cumulative preference shares
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Tata Capital to redeem ₹500 crore cumulative preference shares

Tata Capital will credit the principal and the accrued dividend up to the redemption date on 9 August
  • CRPS is a hybrid instrument, wherein investors get a fixed rate of dividend every year
  • Tata Capital CEO and managing director Rajiv Sabharwal. (Photo: Aniruddha Chowdhury/Mint)Premium
    Tata Capital CEO and managing director Rajiv Sabharwal. (Photo: Aniruddha Chowdhury/Mint)

    MUMBAI : Tata Capital Ltd has decided to exercise its call options and redeem cumulative redeemable preference shares (CRPS) worth 500 crore, it said in a public notice on Monday.

    CRPS is a hybrid instrument, wherein investors get a fixed rate of dividend every year. The two tranches of CRPS being redeemed are of 464.85 crore and 35.15 crore with a dividend rate of 8.33%, sold on 22 April 2015 and 7 September 2015, respectively. Both had a tenure of seven years and had a call and put option built into them. Under the call option, the issuer can redeem the shares before the redemption date and, under the put option, investors could seek early redemption of their shares.

    “The CRPS will be redeemed at a face value of 1,000 each, along with the accrued dividend, from 1 April 2019, up to the redemption date–8 August 2019. The company will credit the principal and the accrued dividend up to the redemption date on 9 August," the notice said.

    Tata Capital is also looking to raise 890 crore through CRPS in FY20 to “redeem existing preference shares" and “make fresh investments", among others, showed documents seen by Mint. These preference share issuances will be issued for up to 10 years, documents from the registrar of companies (RoC) showed. The rate of dividend for this upcoming issue was not disclosed in the document as it was to be determined by the board, which approved the proposal on 27 March.

    Experts said that Tata Capital is likely making use of the falling interest rate scenario and redeeming these existing CRPS by raising fresh funds at a lower rate. For instance, while these two tranches were raised at 8.33% in 2015, Tata Capital raised 33.45 crore by issuing CRPS to two investors on 15 June 2018 at 7.1%.

    Given the elevated funding costs in the non-bank sector, most NBFCs are finding alternative sources of funding, according to Shweta Daptardar, an analyst at Prabhudas Lilladher. Referring to Tata Capital, Daptardar said with 60% of the overall book focused on retail lending and targeted credit growth at more than 25% year-on-year (y-o-y), it is imperative for the company (across the sector) to maintain stable long-term liability structure, hence, the diversification is a must.

    “On the debt market side, the first half of FY20 has been no different from Q4FY19, although G-sec yields have come down. Incrementally, funding costs still remain on the higher side, albeit not as high as Q3FY19, when the crisis unfolded," she added.

    Rajiv Sabharwal, managing director and CEO, Tata Capital, said in an emailed response that in the recent extraordinary general meeting (EGM), the company has passed a resolution to raise fresh CRPS of 890 crore. “The recent rate cuts and overall prevailing liquidity scenario have eased interest rates to lower levels than what it was a year ago. The repricing opportunity at lower levels than before is available based on the pedigree, ratings and performance of the borrower." he added.

    As on 31 March, Tata Sons Pvt. Ltd owns a 94.23% stake in Tata Capital. Other shareholders include Tata Investment Corp. Ltd (2.32%), trustees of Tata Capital employee welfare trust and holders of shares under the ESOP scheme (2.12%), and other Tata Group companies (0.41%), among others.

    Tata Capital also used its call option to redeem some CRPS in FY18. In its annual report for 2017-18, Tata Capital had said that it raised funds by way of issuance of CRPS worth 514.75 crore, and also exercised its call option to redeem CRPS of 484.35 crore.

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    ABOUT THE AUTHOR
    Shayan Ghosh
    Shayan Ghosh is a national editor at Mint reporting on traditional banks and shadow banks. He has over 12 years of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
    Catch all the Corporate news and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
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    Published: 10 Jun 2019, 10:13 PM IST
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