Tata Steel will pre-pay 200m to recast debt

Written by Corporate Bureau | Mumbai | Updated: May 14 2009, 05:25am hrs
Tata Steel Ltd, the worlds sixth-largest steel producer, on Tuesday said its subsidiary, Tata Steel UK, has asked its lenders to reset the terms of the debt it took to buy Corus. As part of the deal, Tata Steel will voluntarily prepay 200 million, or roughly Rs 1,500 crore, of this non-recourse loan to reduce the debt overhang on its European operations as its arm battles the downturn in the European steel industry.

The $12.1-billion (6.2-billion) Corus acquisition was financed by an $8-billion debt raised by Tata Steel UK from a consortium of lenders.

In a release, Tata Steel said it has not sought any additional funding since it has sufficient liquidity to run its operations, and, has not requested any re-scheduling of its debt servicing obligations, as there are no material re-payment or re-financing requirements in the near future.

While announcing its Q3 results earlier, Tata Steel had said it had no repayment obligation till December 2009 in Tata Steel UK. It had also said it would prepay $450-million debt of Tata Steel UK in FY2010.

Tata Steel shares closed up 1.31% on Tuesday at Rs 275.20 on the Bombay Stock Exchange.

The statement comes two days after Tata Group chairman Ratan Tata said in an interview to a UK newspaper that the group wanted the British governments support for facilitation of access to credit. Other than Corus, the group has also acquired Jaguar & Land Rover for 1.15 billion in 2008. Last week, Tata Steel said it might close its Teesside Cast Products (TCP) unit in the UK, part of the Corus, after a consortium of four international firms terminated a ten-year contract for slab offtake from the unit.

Tata Steel said talks for a renegotiation of the non-recourse loan terms are being led by Citigroup, Royal Bank of Scotland and Standard Chartered Bank. Tata Steel UK met its banking syndicate in London and Mumbai to discuss the current debt environment and the potential future impact on some covenant requirements under the companys debt package.

Non-recourse debt is a secured loan, availed of by pledging collateral, but the borrower does not have any personal liability towards it.

The 200-million prepayment would be made by Tata Steel Ltd, which continues to have a significant liquidity buffer, the company said. According to the latest available annual report, for the financial year 2007-08, Tata Steel has investments worth Rs 4,103 crore, which it can draw upon.

But in the near term, there could be an adverse impact on its earnings before interest tax, depreciation and amortisation (Ebidta) that could put a stress on its covenant package in the forthcoming quarters, it said.

The Corus funding structure, as on March 31, 2008, stood as equity capital from Tata Steel Ltd of 3.75 billion ($7.45 billion) and non-recourse long-term debt of 6.90 billion ($13.71 billion).

To coep with the downturn, Corus has reduced steel production by 40% in Europe. The construction market in Europe was down by 50% and the auto market by 30-40% early this calendar year.

The statement said Tata Steel UK has taken steps to restructure operations and reduce costs to weather the downturn, helping it to emerge stronger with improved profitability in the future.