Tata Steel to raise money
Tata Steel board has approved raising of funds upto Rs 12,800 crore through a mix of debt and equity which includes a rights issue to fund the company’s proposed expansion in steel capacity by 5 million tonne at an investment of nearly Rs 23,000 crore. The capacity is likely to be added with four years of the date of commencement of construction.
It marks the first big ticket investment in new steelmaking capacity by a domestic major in recent times signaling a strong pick up in steel demand at home. It comes close on heels of announcement by Steel Authority and the world’s largest steel company ArcelorMittal on plans to set up an 1.5 million tonne (mt) automotive steel joint venture in India at an investment of almost 15,000 crore.
The company’s board which meet over two days on December 18 and 19 reviewed the company’s long term strategy including its organic and inorganic growth opportunities. The Board also approved the financial plan to raise capital for the above which will be deployed for de-leveraging the balance sheet and general corporate purpose, Tata Steel said in a notification to the stock exchanges on Tuesday.
The new addition to capacity will come up at the company’s greenfield location at Kalinganagar in Odisha where Tata Steel has successfully implemented a 3 mt plant. With the expansion steel capacity at Kalinganagar will be raised to 8 mt. Taking into account its existing 10 mt capacity at Jamshedpur, the expansion is due to raise Tata Steel’s total domestic steel capacity to 18 mt from an existing level of 13 mt. The new capacity is poised to meet requirements of automotive, general engineering and other value added segments, the company said. Tata Steel scrip closed at Rs 710.30, up 0.79% at on the BSE on Tuesday. “The announcement itself was expected since Tata steel has been talking about adding capacity in India. However, the (big) size of the rights issue is a bit surprising,” Sanjay Jain, metals analyst at Motilal Oswal Securities said.
While the likes of JSW Steel have already added capacity, with steel cycle improving, Jain felt there would be more new capacity additions in the steel sector including those in some of the NCLT cases after they are resolved.
Tata Steel had previously brought a 1:5 rights issue in 2013 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 third rights issue by Tata Steel in two decades. Earlier the company had a 1:3 rights offer in 1988 and a 2:5 offer in 1993.
The project configuration and costs include investment in expanding raw material capacity, upstream and midstream facilities, infrastructure and downstream facilities including a cold rolling mill complex. To give effect to the issue, the Board authorized the Executive Committee of the Board to decide the structure, terms and conditions of the issue including the instruments options, rights entitlement ratio, issue price , record date and timing of the issue.