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Tata Steel issues USD 332 mn through hybrid securities
Tata Steel has successfully raised USD 332 mn (INR 15 bn) by issuing perpetual
bonds. Key features of the bonds are that they are perpetual in nature, do not
carry any redemption, and are callable only at the option of the bond issuer, i.e.
Tata Steel. The coupon of these securities has been set at 11.8% p.a. and
includes a step-up provision if the bonds are not called within 10 years of issue.
This is a unique, innovative structure.
Avoiding further dilution
We believe the company has used this structure to avoid equity dilution as
promoter stake is currently low at ~31%. Post issue of 15 mn equity shares (INR
8.9 bn) on a preferential basis and 12 mn warrants (INR 7.2 bn) to promoters,
Tata Steel successfully completed its FPO raising INR 34.8 bn (offering 57 mn
shares at INR 610/share). These funds were largely raised for the ongoing 2.9
mtpa expansion expected to be completed by December 2011 and incorporating
a total outlay of ~INR 160 bn. Post FPO, the company has resorted to this
innovative way of raising long term funds without diluting equity.
Outlook and valuations: Positive; maintain ‘BUY’
We continue to believe that Tata Steel will benefit from the ongoing 2.9 mtpa
expansion as volume contribution is expected to begin in FY13. The same will
continue to be a high margin contributing business and has the potential to
contribute more than USD 1 bn to overall EBITDA at full capacity. Moreover,
international projects are also gaining visibility with the coking coal project in
Mozambique and iron ore project in Canada expected to be commissioned in
FY13. We also believe that Tata Steel Europe will report average EBITDA/t of
USD 60 for FY12E. We currently have a ‘BUY/ Sector
Outperformer‘ recommendation/ rating on the stock with a fair value of INR
778/share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Steel issues USD 332 mn through hybrid securities
Tata Steel has successfully raised USD 332 mn (INR 15 bn) by issuing perpetual
bonds. Key features of the bonds are that they are perpetual in nature, do not
carry any redemption, and are callable only at the option of the bond issuer, i.e.
Tata Steel. The coupon of these securities has been set at 11.8% p.a. and
includes a step-up provision if the bonds are not called within 10 years of issue.
This is a unique, innovative structure.
Avoiding further dilution
We believe the company has used this structure to avoid equity dilution as
promoter stake is currently low at ~31%. Post issue of 15 mn equity shares (INR
8.9 bn) on a preferential basis and 12 mn warrants (INR 7.2 bn) to promoters,
Tata Steel successfully completed its FPO raising INR 34.8 bn (offering 57 mn
shares at INR 610/share). These funds were largely raised for the ongoing 2.9
mtpa expansion expected to be completed by December 2011 and incorporating
a total outlay of ~INR 160 bn. Post FPO, the company has resorted to this
innovative way of raising long term funds without diluting equity.
Outlook and valuations: Positive; maintain ‘BUY’
We continue to believe that Tata Steel will benefit from the ongoing 2.9 mtpa
expansion as volume contribution is expected to begin in FY13. The same will
continue to be a high margin contributing business and has the potential to
contribute more than USD 1 bn to overall EBITDA at full capacity. Moreover,
international projects are also gaining visibility with the coking coal project in
Mozambique and iron ore project in Canada expected to be commissioned in
FY13. We also believe that Tata Steel Europe will report average EBITDA/t of
USD 60 for FY12E. We currently have a ‘BUY/ Sector
Outperformer‘ recommendation/ rating on the stock with a fair value of INR
778/share.
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