In what bears out the scramble among India’s steel companies to add new capacities on a war-footing, Tata Steel has drawn up plans to raise up to Rs 7,000 crore through a follow-on public offer (FPO) to part-finance its expansion. The country?s third largest steel producer?s FPO comes close on the heels of JSW Steel?s recent acquisition of Ispat Industries which made it a close competitor to public sector SAIL for the slot of the country?s largest steelmaker.
While Tata Steel plans to treble its capacity from 6.8 million tonne (mt), SAIL, whose Rs 8,000-crore FPO is slated to hit the market in the next few weeks, is expected to add another 10 mt to its existing capacity of about 14 mt by 2013-14.
According to a Tata Steel official who refused to be identified, the company’s proposed market offering is expected in the form of shares or warrants or a mix of both. Post issue, Tata Sons stake in Tata Steel would come down to 15-18% from the current 32.6%.
Around Rs 1,100 crore out of the total issue size would be raised from foreign institutional investors (FII) by way of convertible warrants, the source added. The company will soon initiate discussions with the potential foreign investors including hedge funds for a possible qualified institutional placement of shares. JPMorgan, Citi, Standard Chartered, RBS are among the bankers advising the company on the prospective issue.
The official said the modalities of the FPO will soon be put up before the company’s board for approval. ?Whichever shape the fund raising plan takes, it will done under a fast-track mechanism,? the official said without giving the details of the timing of the issue.
When contacted, a Tata Steel spokesperson said, ?The company has taken shareholders’ postal approval to raise funds, following the board’s approval in November 2010. We have no more information to share on this as of now.?
Industry sources said Tata Steel has now to fast-track its domestic expansion plans and therefore fund raising would have to be done fast. This is because with the recent 41.29% acquisition of Ispat Industries by JSW Steel the combined capacity of the two has gone up to 14.3 mt. This has virtually lead to a capacity-addition race amongst the country’s big steel producers.While SAIL plans to become a 60 mt company by 2020, JSW aims to become a 34 mt steelmaker by then.
The capacity expansion spree among domestic steel companies comes at a time when the massive greenfield projects of foreign companies like Posco and Arcelor are held up for want of clearances.
Tata Steel’s current domestic steel making capacity stands at around 6.8 mt. The capacity expansion plan includes a brownfield expansion at the Jamsehedpur plant to add another 2.9 mt at an investment of Rs 15,000 crore. This is expected to be over by March 2012. In addition, the company has planned two greenfield capacities in Orissa of 6 mt and Chhattisgarh of 5 mt. The company had acquired Anglo-Dutch steel firm Corus in 2007 for $12. billion. It had also purchased Singapore’s NatSteel and Thailand’s Millennium Steel. Put together the company’s total steel making capacity is at around 30 mt, which ranks it as the world’s seventh largest steel producer. The company’s total debt stands at around $9.5bn, which is mainly due to debts raised to purchase Corus.