The Hindu Business Line : Raw material security is Tata Steel’s major concern

Before it acquired a plethora of overseas steel entities, Tata Steel was sitting pretty with captive availability of raw material (mainly coke) to the tune of 60 per cent of requirements.

After it acquired Corus, Tata Steel group’s “raw material security” was 22 per cent in 2007. This would further come down, after the completion of the Rs 4,550-crore expansion of Jamshedpur Works. The expansion is in two phases — the first phase will take the capacity up to 6.8 million tonnes (from 5 million tonnes now). The second phase will raise the capacity further to 10 million tonnes a year.

Tata Steel meets all of its iron ore and 60 per cent of its coal requirement for Indian operations from its own mines. Tata Steel’s standalone raw material security was 80 per cent and 22 per cent for the group in 2007. In the next three to five years, the raw material security of Tata Steel standalone will reach 40 per cent following the expansion at Jamshedpur and with the Kalinganagar (Orissa) plant going on stream.

Tata Steel’s annual report for 2007-08 speaks eloquently of the need for securing raw material. “It has become imperative for Tata Steel to aim towards attaining a significant level of raw material security, thereby insulating the company from the force of market which is dominated by a few companies,” it says.

The company’s strategy towards achieving raw material security would be to look for participation in the early stage of a project (exploration or pre-feasibility stage) and to look for opportunities that would give the group immediate offtake.

Accordingly, the company has taken a number of steps towards acquiring raw material sources abroad, many of which were taken in 2007.

How Corus was funded

The annual report notes that “despite very volatile credit markets globally”, the company raised $6.2 billion (Rs 25,000 crore) of term debt with an average life of around five years “at very competitive rates”. These funds were used to finance the acquisition of Corus.

“The syndication of this debt was completed during the year with more than 25 banks and institutions participating,” it says.

On the equity side, Tata Steel raised $2.27 billion (Rs 9,120 crore) of equity and convertible preference shares on rights basis. Further, the company raised $875 million in ‘convertible alternate reference securities (CARS), a 5-year convertible instrument.

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