Tata Steel, which has announced a follow-on public offer (FPO) to raise up to Rs 3,500 crore, will not be drawing close to half the debt tied up for its 3-million tonne Jamshedpur plant expansion. Instead, it will use the money, Rs 5,000 crore, for Phase-1 of its 3-mt Kalinganagar steel plant in Orissa.
The Jamshedpur expansion was envisaged at close to a 2:1 debt-to-equity ratio, and the company had last year tied up Rs 11,000 crore in debt for the project. Slated for commissioning in December, Tata Steel has spent Rs 7,000 crore on the project, mostly from internal cash generation.
Tata Steel Group CFO Koushik Chatterjee told Business Standard: “The Jamshedpur plant expansion has a total cost of Rs 15,000-16,000 crore. We will restrict using money from the debt tie-up, and will keep the appetite for the Orissa project.”
Chatterjee said that the company is looking to draw a total debt of Rs 6,000 crore for the Jamshedpur expansion and the remaining Rs 5,000 crore will be used as and when needed for the Orissa plant. He said the FPO is intended “not to raise any more debt”.
“The 2:1 debt-to-equity ratio for the Jamshedpur expansion was decided at the peak of the crisis. Now, we are looking to invest Rs 1,870 crore from the FPO money into the Jamshedpur expansion, taking the total equity investment close to Rs 9,000 crore. Therefore, the debt-to-equity ratio comes below 1:1,” Chatterjee added.
Also Read
The company wants Rs 10,000 crore in equity and Rs 6,000 crore in debt, he said. Of the money raised through the FPO, Rs 1,000 crore will be used to repay debt.
Chatterjee said Kalinganagar’s 6-mt plant, which is to be set up in two phases of 3 mt each, will have “more appropriate debt and equity investments”. The total project cost is Rs 23,000 crore, and Tata Steel has decided to divide the project equally between debt and internal accruals.” Construction is expected to begin this month.
Tata Steel’s FPO opens for retail investors on January 19, with 35 per cent of shares kept aside for them. The anchor book will open on January 18. The issue closes on January 21 and the company has announced a price band of Rs 594-610 a share.
On Monday, the share price of Tata Steel closed at Rs 622.90. Therefore, at the high end of the price band, investors will get a discount of just 2 per cent. “Liquidity is not a problem and there is appetite in the market for Tata Steel shares. As the company is looking to raise Rs 1,200 crore from retail investors, we don’t expect any problems and the company should be able to raise the money easily,” said an analyst with a domestic research firm.
Meanwhile, Reuters reports that Tata Steel is open to investing part of its upcoming share sale proceeds in a project of Australian miner Riversdale. “Part of proceeds will be, at the discretion of the Tata Steel board, invested in a project there,” Chatterjee told reporters on Monday.
Tata Steel’s stake in Riversdale is a strategic investment and the world’s seventh largest steelmaker is focused on development of the Benga power plant project in Mozambique, Chatterjee added.
Tata Steel is the largest shareholder in Riversdale with a 24 per cent stake.
