Tata Steel's rights issue to raise Rs 10,000cr

To aid Corus buy via issue of equity and preference shares, overseas listing.

In the biggest fund-raising effort by an Indian company, Tata Steel, the world's fifth-largest steel company, today announced a rights issue of equity and preference shares to mobilise Rs 10,000 crore to part-finance the acquisition of Anglo-Dutch steel company Corus Group for $12.9 billion (Rs 53,850 crore).

The plan, which bets on a recovery in steel prices, includes an overseas listing of Rs 2,100 crore.

While the rights offer of equity shares will raise Rs 3,655 crore, the convertible preference shares will net Rs 4,350 crore.

Priced at Rs 300 a share, one rights equity share will be given to shareholders for every five shares they hold. The pricing of the rights issue is 43.1 per cent lower than the stock's closing price of Rs 528 on the Bombay Stock Exchange today.

This will be the third rights issue by Tata Steel in the last 22 years and the first share sale after 15 years. The company had a 1:3 rights offer in 1988 and a 2:5 offer in 1993.

The company will simultaneously issue preference shares that can be converted into shares at Rs 500 to Rs 600 each after two years. Shareholders will get one share for every seven held and will be paid a coupon of 2 per cent.

Tata Sons, the main promoters of Tata Steel, will subscribe to the unsubscribed portion of these rights issues. The promoters hold a shade over 30 per cent in Tata Steel.

Addressing the media after a board meeting today, Tata Steel Managing Director B Muthuraman said the fund-raising effort is in line with the company's equity commitment of $4.1 billion (Rs 17,750 crore) for the Corus acquisition.

This amount will be put into Tata Steel's subsidiary, Tata Steel Asia Holdings (Singapore), which will invest the money in Tata Steel UK, the investment vehicle for the Corus acquisition.

Tata Steel has already raised Rs 7,940 crore through internal generation of Rs 3,000 crore, external commercial borrowings of Rs 2,170 crore and a preferential issue of Rs 2,770 crore, he said.

When asked, N A Soonawala, vice-chairman of Tata Sons, said Tata Steel's equity capital would be increased to Rs 850 crore from Rs 580 crore after all these issues.

Koushik Chatterjee, chief financial officer, Tata Steel, said the consolidated debt-equity ratio will exceed 1 after these issues. The current debt:equity ratio is 0.3. However, he said, the ratio will come down below 1 in the near future.

Of the total $12.9 billion to be paid for Corus, Tata Steel will contribute $4.1 billion to fund the purchase and raise $6.14 billion of loans. A further $2.66 billion is being raised overseas as bridge finance, or a short-term loan, Muthuraman said.