MUMBAI, JAN 31: The biggest question that has been thrown up in Tata’s race for Corus is how would the company fund the big- ticket acquisition. The Tata brass has not been very forthcoming about the exact structure of the deal and has been harping on how the financial structure of the deal will not shift from the initial model.
| Fund-Amentals | | • Leveraged financing to be routed through UK-based special purpose vehicle
• The leverage buyout financing will be against Corus’s future cash flow with a tenure of 10 years
• Financing of $3.5 billion is being arranged, for which Standard Chartered will be the lead manager |
Sources close to the deal spelt out the broad structure of the deal to FE. Of the total $12 billion, $8.5 billion will be leveraged financing, routed though the UK-based special purpose vehicle (SPV). Funds for this will be raised against Corus’s future cash flow. The LBO (leverage buyout) financing will be against Corus’s future cash flow with a tenure of 10 years. The LBO financing is being arranged by ABN Amro, Deutche Bank and Credit Suisse. Additionally, on the Tata Steel balance sheet, an acquisition financing of $3.5 billion is being arranged, for which Standard Chartered has been mandated the lead manager.
What is also noteworthy is that the $4.1 billion equity contribution by the Tata group through these two modes of financing will be routed through Tata Steel and Tata Industries.
Tata officials claim that although they will pay 34% more for its revised and final bid, there is no major change in the manner the deal has been structured. “The financing arrangements put in place by the company prior to announcement of its revised offer for Corus on December 10, 2006 remains in place,” Tata Steel said in a notice to the exchanges. The additional finance required for the revised acquisition will be funded by way of a combination of additional credit facilities and a cash contribution by the company to Tata Steel UK, it added.
The debt has been structured so that a large share of it can be serviced by the cash flow of Corus. “The debt equity ratio of the entire deal will remain at 47:53,” said Kaushik Chatterjee, CFO, Tata Steel.
Tata Steel also said that ABN AMRO and Deutsche Bank, as joint financial advisers, are satisfied that sufficient resources are available to fund the revised acquisition. |
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