Tata SteelNSE -0.79 % plans to raise Rs 12,000 crore via non-convertible debentures, the company said in a stock exchange filing on Saturday. It will seek shareholders’ approval for the issue at the annual general meeting on July 20.
The announcement comes after Tata Steel raised Rs 12,800 crore through a rights issue in March to fund capacity expansion at its Kalinganagar plant in Odisha.
“We are continuously reviewing our financing requirements to fund the company’s growth projects and capital expenditure programmes and to maintain a strong liquidity position,” the management said in the company’s annual report, referring to financing of its ongoing efforts in Kalinganagar as well as the acquisition of 3.5 million tonne Bhushan Steel that was under bankruptcy proceedings.
In the financial year that went by, apart from the rights issue that was one of the largest in the country, ABJA Investment Co., a wholly owned subsidiary of Tata Steel, also issued two tranches of $1.3 billion unsecured bonds in the international markets.
The success of these issues is a testimony to the investors’ confidence in the long-term strategy of the company, the steelmaker said in the report, adding that as part of reviewing its investment portfolio periodically, it also realised about Rs 3,500 crore through portfolio divestment.
In line with its focus on growth and expansion, Tata Steel is expanding its capacity at Kalinganagar from 3 MT to 8 MT. It has also acquired Bhushan Steel for Rs 35,200 crore and is one of the final two bidders for Bhushan Power & Steel for which it has reportedly bid Rs 17,000 crore. It is also eyeing the speciality steel business of Kolkata-based Usha Martin.
“With so much going on, Tata Steel will need to raise money through different routes and with the current promoter stake, equity dilution is unlikely,” said Goutam Chakraborty, a metals analyst at Emkay Securities. Chakraborty was referring to a low level of promoter holding in the company at 33%, which does not make equity dilution a plausible option.
Tata Steel’s debt has increased 1.6 times after the Bhushan Steel deal that got completed in May. Its net debt at the end of March was Rs 69,215 crore, according to Bloomberg estimates.
Higher borrowing will put pressure on the balance sheet, Chakraborty said. However, in a recent meeting with analysts, the management said it was confident of cash flow generation, assured by better operational performance in Q1 than in Q4. Even though the second quarter of July-September is a weak one with the monsoon setting in, Q3 will again see better realisations with buoyant prices and less volatility in raw material prices.
