Tata Steel is trying hard not to dilute the promoter’s stake and yet raise money for its long-term needs. The company plans to raise $500 million (Rs 2,290 crore) by issuing bonds, preferably perpetual bonds.
Sources close to the development told Business Standard that plans to raise the money had been firmed up.
“The company has decided to go for perpetual bonds, as they are treated as equity capital and yet there is no dilution in the promoter’s shareholding,” a source said. A perpetual bond has no maturity date and is usually marked by interest payment through the life of an investor. However, the interest rates on such bonds are very high and have to be serviced ‘forever’. Another official privy to the fundraising plan said, “Yes, there are plans to raise $500 million, through a bond issue.” The company may launch the issue in the next three to six months.
Sources said the company was looking to raise the money from the international market and will bear an interest rate of around nine per cent.
An email sent to Tata Steel did not elicit any response.
The first source said, “The FPO (follow-on public offer) of Rs 3,400 crore has brought down the promoter’s stake in the company by over two percent and the group is not very flexible in bringing it down further. Therefore, issuance of perpetual bonds has been decided, as it is a very long-term bond with no equity dilution.”
“Since the company is looking at raising long-term funds, it has chosen perpetual bonds, as by nature, these bonds are issued by companies or banks, who are in need of long-term funds.”
