After disclosing a $1.6-bn non-cash writedown to its investors, Tata Steel is now going ahead with plans to raise $1 billion 10-year US-dollar denominated bonds. The company is likely to begin roadshows shortly to market the bond issue, say sources.
After the disclosure, concerns had emerged that the steel major may have to pay a higher coupon rate to investors for raising funds in the US-dollar bond market. However investment bankers say this would not be the case. ?It is just an accounting adjustment and would have no bearing on the bond issue,? said an investment banker, who did not want to be named. Citigroup and Deutsche Bank are among the banks involved in the deal.
Bankers and ratings agency executives explain Tata Steel?s future debt issuance or share price should not be affected due to the goodwill writedown as it is a non-cash transaction.
?For credit ratings agencies, cashflow is more important, which shows the interest serving capability of a company. The impact of non-cash transaction of this particular asset has already been factored in while accessing the company?s rating earlier,? said Kishore Gandhi, chief credit officer of India-Ratings.
Moody?s has a Ba3 rating on Tata Steel. S&P has a BB rating and Fitch has a foreign currency issuer default rating of BB+. All three have negative outlook on the company’s rating.
Earlier this month, Tata Steel had raised S$300 million through Singapore-dollar denominated bonds due 2023. The coupon rate on that bond issue was 4.95%
Even if Tata Steel now has to pay a slightly higher cost to raise funds after the disclosure, according to some media reports, the writedown announcement was necessary to get a 144A status under US Securities & Exchange Commission (SEC) regulations. This status enables the bonds to be sold to qualified institutional buyers in the US and widens the investor base. The upcoming issue will have a 144/Reg S status. Reg S status means the bond doesn?t need to be registered with the US Securities & Exchange Commission.
Meanwhile, Vedanta Resources has hired banks including JP Morgan and Standard Chartered to arrange sale of its planned dollar-denominated bonds, according to sources.
Since January, 16 companies have raised over $9.2 billion through overseas bond issues. The issues have met with strong demand in an environment where global investors are chasing yield and central banks continue to pump in liquidity.
The biggest issuer this year has been Bharti Airtel, which has raised a $1.5 billion through 10-year paper at 5.13%, followed by State Bank of India?s $1 billion raise via 5-year bond at 3.63%.
