Tata Steel is likely to launch a rights issue of nearly Rs 3,500 crore to part-finance its $12.15 billion acquisition of Anglo-Dutch steelmaker Corus Group, payment for which is to be made tomorrow. The issue may be priced at around Rs 400 a share, against today's close of Rs 495.55 on the Bombay Stock Exchange.
Sources close to the situation said the Tata Steel board is slated to discuss the issue at its meeting on April 17. The proportion of the issue how many rights shares to be given against existing sharescould not be ascertained. When contacted, a Tata Steel spokesperson declined comment.
The Tata Steel stock has risen 16.84 per cent in the past one week, anticipating such a move from the company. The BSE Sensex has risen 4.5 per cent in the period. In the past one month, the stock has gone up by 14.23 per cent, against the Sensex's rise of 2.2 per cent.
Sources said the Tata Group had preferred a rights offer over an overseas float as it might help the promoters scale up their stake by picking up the unsubscribed portion of the offer. At least, it will not end up with a reduction in the promoters' stake, which would have been the case had the company opted for an overseas listing. The promoters hold a 30 per cent stake in the company.
The company told the stock exchanges today that the board would consider raising equity funds as part of its long-term fund-raising exercise to finance Tata Steel's investment in the special purpose vehicle for acquiring Corus Group Plc UK.
Tata Steel will make the payment for the Corus acquisition tomorrow. It had already bought a 21 per cent stake in Corus through open market transactions. Sources said Tata Steel UK, Tata Steel's wholly-owned subsidiary through which the acquisition was routed, would raise nearly $9 billion through a mix of senior bank debts and high yield debts. Termed as leveraged buyout, this debt will be serviced from the future cash flow of Corus. Tata Steel and Tata Sons have committed to bring in $4.1 billion as their contribution towards the special purpose vehicle Tata Steel UK. Of this, nearly $1.3 billion will be funded from Tata Steel's cash reserves. Also, Tata Sons will provide funds through conversion of warrants. The remainder would be raised through debts.
Tata Steel, at the annual general meeting in July 2006, had passed an enabling resolution to raise Rs 6,500 crore. As part of the fund raising, promoters had infused Rs 1,393 crore through subscription of preferential shares. They had also subscribed to 28.5 million warrants, which are due for conversion into equity shares after April 1, 2007.
The completion of the Corus deal is pursuant to the scheme of arrangement being declared effective by the High Court of Justice in England and Wales on April 2 2007. Tata Steel was required to dispatch the consideration not more than 14 days after the effective date i.e, by April 16.
This will be the third rights issue by Tata Steel in the last 22 years. The company issued 1:3 rights offer in 1988 and 2:5 offer in 1993.