Approves conversion of existing securities into FCCBs.
Tata Steel, the world’s eighth largest steel maker by output, has approved an exchange offer for an existing $875 million of securities into foreign currency convertible bonds (FCCBs), in a move to reduce costs and ease repayment. The move gives an option to extend the repayment schedule by two years.
The new FCCBs will have a yield-to-maturity of 4.5 per cent and are to mature in November 2014. And, are convertible into shares at Rs 605.53 each, a 15 per cent premium to the closing price on Wednesday.
The existing convertible alternative reference securities (CARS) had a yield-to-maturity of 5.15 percent and were due in 2012. The securities were convertible at Rs 733, and had a redemption premium of 23 per cent in case they were not converted.
“There is uncertainty over the share price reaching the conversion price by 2011-12. If conversion fails, the company has to fund redemption liabilities through internal accruals or raising fresh debt,” said Prasad Baji, senior vice president, Edelweiss.
With the swap, there would be an $875 million reduction in the company’s outstanding debt, assuming full acceptance of the offer, said Baji, terming the offer “attractive” for the securities holders.
“The company feels it is the right time to raise money, though they have two-three years still left to reach the conversion,” he added.
Shares of Tata Steel fell 2.75 per cent after the exchange offer announcement and it closed at Rs 511.85 in a weak Mumbai market.
The company said it was making the exchange offer to lengthen its debt maturity profile, lowering cost and potentially reducing future repayment obligations. Standard Chartered Bank, ABN AMRO Bank, Citigroup and Calyon are the managers to the exchange offering, the company added.
Tata Steel, which bought Anglo-Dutch steel maker Corus in January 2007 for $12.9 billion, posted a group loss in the first quarter ended June 30 because of lower prices and production cuts at Corus. The unit, which provides more than two-thirds of Tata Steel’s output, operated at about 60 per cent of its capacity in the period after orders from car makers and builders collapsed.
In Tata Steel Exchange Offer, there is a different pricing for Early Comers and Late Comers. To qualify as an Early Comer, the invetsor needs to accept the Offer through due process within hours of announcement of the Exchange Offer. I believe that the Exchange Offer was launched late evening on Wednesday (11.11.09) and an Early Comer is to accept the Offer by 10am on Thursday (12.11.09). May be the laws are silent on minimum timeframes to be offered to investors to respond ? But, I think it definitely is too short a time for most investors to respond as even the full details of the Offer are hard to obtain and absorb in this timeframe.
Am I missing something here ?
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