Tata Steel Ltd, through a subsidiary, has entered into refinancing agreements for debt worth $1.5 billion, the company said on Wednesday.
The steel maker has executed these agreements through its Singapore-incorporated subsidiary T S Global Holdings Pte Ltd (TSGH). The $1.5 billion worth of loan facilities, the company said, comprises a five-year loan and a six-year loan worth $750 million each.
“The proceeds of the loan will be used to repay the existing term loan facilities in TSGH,” the company said in a statement to the BSE. The loan facilities have been contracted with a group of 16 mandated lead arrangers.
“The margin charged on the $1.5 billion debt has reduced by between 50-60 bps depending on the tranche,” Koushik Chatterjee, group executive director (corporate and finance), Tata Steel, said in an email response on Wednesday.
The global steel industry is under pressure due to failing demand and weak steel prices. In India, domestic steel manufacturers such as Tata Steel and JSW Steel Ltd continue to face the heat due to cheaper steel imports.
For the September quarter, Tata Steel reported a consolidated net profit rose 22% to Rs.1,528.71 crore. The profit was largely helped by sale of the company’s investments in group companies. For the same period, its European unit reported a loss of Rs.139 crore at the Ebitda (earnings before interest, tax, depreciation and amortization) level.
The refinancing will provide more financial headroom for the business, Chatterjee said in the statement to the BSE.
Including the $1.5 billion refinancing announced on Wednesday, Tata Steel has refinanced debt worth $8.5 billion since July 2014.
In July 2014, Abja Investment Co., a Singapore-based subsidiary of Tata Steel, raised $1.5 billion from a sale of bonds to international investors.
In October 2014, Tata Steel UK Holdings Limited (TSUKH) executed agreements for the refinancing of its bank debt through a term loan and revolving credit facilities of €3.05 billion. In the same month, TSGH executed agreements for loan facilities of $1.5 billion.
“Overall, this US$7 billion refinance last year, replaced the bulk of the international debt portfolio and de-risked and termed out the capital structure of the Tata Steel Group. The refinancing in TSUKH last year, ensured that there is no repayment of principal due from TSUKH until 2019,” Chatterjee said in the email response. The $7 billion refinance also included debt originally incurred in relation with the $12.9 billion acquisition of Corus Group plc in 2007.
Analysts say the company may need to refinance more of its debt.
“The total debt is very high and they might need to refinance it as and when need and the opportunity arises. The company’s current cash flows are under pressure due to the weakness in the global steel industry,” said Goutam Chakraborty, an analyst at Emkay Global Financial Services
As of September, Tata Steel had consolidated debt of Rs.71,798.36 crore.
Chakraborty does not expect the $1.5 billion refinance announced on Tuesday to help save on costs. “The refinance would help defer debt repayment schedule and to provide respite on the debt covenants. This may not bring any significant interest cost savings,” he said.
In financial year 2014-2015, Tata Steel’s consolidated finance cost was Rs.4,847.75 crore.
Tata Steel expects the refinancing to help reduce repayment risks.
“The refinancing does not impact the overall leverage in the company. It does however help to term out repayment risks and (sometimes) obtain more flexible terms of financing- which in turn, de-risks the balance sheet,” Chatterjee said in the email response.
He did not say what was the extent of reduction in interest costs since October 2014. “A material reduction in margins charged on facilities since October 2014 has been achieved through refinancing as debt market conditions have improved,” he said
On Wednesday, Tata Steel Ltd shares rose 2.46% to Rs.244.50 on the BSE, while the benchmark Sensex fell 0.2% to close at 26,117.85 points.
Source: http://www.livemint.com/