Tata Sons has decided to scale up its stake in Tata Tea, the group's beverage company. This plan comes two months after the group's promoter company announced its intention to increase its holding in Tata Steel.
Tata Tea announced on Thursday it would allot preferential shares with attached warrants to Tata Sons to raise Rs 420-460 crore (Rs 4.2 billion to Rs 4.6 billion).
Without revealing the stake to be offered to Tata Sons or the price, a statement issued by the company says the offer will be in accordance with the relevant Securities and Exchange Board of India regulations and will be subject to required approvals.
Tata Tea pointed out that the preferential issue would not exceed 20 per cent of the company's existing capital. It has a paid-up equity capital of Rs 56.21 crore (Rs 560 million). It is unlikely that the preferential issue will trigger an open offer. The company, however, did not say anything specific on the issue.
Industry sources said the maturity of the warrants would be designed in a way that Tata Sons' holding would not cross 5 per cent in one year. Sebi guidelines for preferential issues stipulate a 20 per cent open offer if the acquisition exceeds 5 per cent annually.
At today's closing price of Rs 766.30, Tata Sons could subscribe to 5.4 million shares (after conversion of warrants) to pump in around Rs 420 crore (Rs 4.2 billion) of capital. This represents a stake of around 22 per cent in the expanded equity capital of the company, post issue.
Tata Tea said the proceeds of the preferential issue would be used to part finance the acquisition of Energy Brands Inc through its UK-based subsidiary, Tata Tea (GB) Ltd. Tata Tea is supposed to chip in Rs 890 crore (Rs 8.9 billion) towards financing Energy Brands.
"The remaining amount required for the acquisition will be raised through the sale of certain investments and from our own resources," Tata Tea said.
The method of financing will minimise the cost of the acquisition.
"Pending raising of all these funds, the company will resort to short-term bridging finance as may be required," it said.
Industry sources said Tata Tea might raise resources by spinning off its north India plantations operations into a separate entity and subsequently divesting stake to a clutch of investors.
Tata Sons holds a 15.06 per cent stake in Tata Tea among a group holding of 28.95 per cent.
The other group companies with stakes in Tata Tea include Tata Coffee (0.35 per cent), Ewart Investments (0.61 per cent), Tata Industries (0.13 per cent), Tata Chemicals (7.68 per cent) and Tata Investment Corporation (5.12 per cent).
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