Companies

In a first, Tata Steel raises Rs 1,500 crore thru perpetual hybrid bonds

Our Bureau Mumbai | Updated on March 18, 2011 Published on March 18, 2011

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Securities carry an annual interest rate of 11.8%

Tata Steel has raised Rs 1,500 crore through issue of perpetual hybrid securities (bonds), which will carry an annual interest rate of 11.8 per cent with an option to raise it after 10 years.

The lead arrangers for the issue are J.P. Morgan Securities India and ICICI Bank.

This is for the first time that a corporate entity has floated a perpetual bond, a common practice with banks. The Tata Steel bond was privately placed in India and will be listed on the Bombay and National Stock Exchanges. It has an option to defer payment of interest on the bond.

Mr Koushik Chatterjee, Group Chief Financial Officer, said: “The issuance of these perpetual hybrid securities is an important step in the overall financing strategy and capital structure management of the Tata Steel Group.”

These securities are higher in the pecking order (to share capital) and have equity characteristics, the company said in a release on Friday.

According to an analyst, just like equity shares, the Tata Steel bond is perpetual and returns are not certain as the company retains the right to defer interest payment. “In case of liquidation of the company, the perpetual bondholders precede equity share investors,” he said.

The unique features of the securities are that they are perpetual in nature with no maturity or redemption and are callable only at the option of the company.

“As Tata Steel continues to develop and execute its significant and earnings accretive growth plans, this innovative, long-term funding with equity features, but without the associated economic dilution, helps to diversify our financing options,” Mr Chatterjee added.

The company has recently raised Rs 3,500 crore through a follow-on public offer which was subscribed six times. Last year, Tata Steel raised Rs 700 crore by selling its stake in Tata Motors and Tata Power to Tata Industries.

EXPANSION PLANS

Tata Steel plans to expand capacity to 10 million tonnes from 6.8 million tonnes at Jamshedpur by August. The company is also setting up a six mtpa greenfield project in Orissa with an investment of about Rs 20,000 crore. It has already acquired the land and begun the groundwork.

Tata Steel has signed a joint venture agreement with Nippon Steel for a 60,000 tonne specialty steel making plant for the automobile sector at Jamshedpur with an investment of Rs 2,300 crore.

The expansion was part of its plans to take its annual capacity to 16 million tonnes by 2014 at an investment of about Rs 40,000 crore.

Published on March 18, 2011
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