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Tata divests entire stake in
Riversdale
„Riversdale stake sale has mixed implications, Underperform
Despite strategic nature of investment in Riversdale (Riv), Tata decided to sell its
stake as it did not want to have an equity stake in Riv post delisting without a JV
agreement with Rio. Tata’s economic interest in the Benga coking coal project
falls from 52% to 35%. The parent level stake allowed Tata to have an influence
on Riv’s strategy & protect its interest in the Benga JV project. Proceeds from the
deal could lower net gearing/interest cost and lift FY12e EPS by 5%.We retain our
est. as we see downside risks from lower steel prices & higher coking coal costs.
Tata sells 26.74% stake in Riversdale Mining for US$1.1bn
Tata decided to exit Riv after Rio (73.2% stake pre deal) indicated its intention to
delist Riv. Tata will retain its 35% stake in the Benga coal asset JV (502mt
reserves coking + thermal coal). We believe the parent level stake allowed Tata to
have an influence on Riv strategy incl. investment, capital allocation & execution
of the Benga project. Tata remains hopeful of enhancing participation in good faith
in the Benga project under the JV agreement between Tata and Riversdale.
Deal proceeds may be used for deleveraging, funding capex
The gain from the deal is ~US$550mn. Tata may have to pay short term capital
gains tax on shares acquired in FY11 (~3% stake in March). We believe the
proceeds may be used to 1) finance its capex (US$2.2bn p.a. over next 2-3 yrs);
2) deleveraging BS. Assuming the proceeds are used for lowering debt (current
net debt US$10.5bn), net gearing could reduce to ~1.2x from 1.4x in Mar Q.
Moderating steel outlook, maintain Underperform
We remain cautious on Tata due to 1) moderating domestic fundamentals and
lower domestic margins led by lower prices and higher costs; 2) potential margin
squeeze at TSE (Corus) post June Q due to lower prices and lagged impact of
higher input costs; 3) jump in capex intensity and continued risk of dilution.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata divests entire stake in
Riversdale
„Riversdale stake sale has mixed implications, Underperform
Despite strategic nature of investment in Riversdale (Riv), Tata decided to sell its
stake as it did not want to have an equity stake in Riv post delisting without a JV
agreement with Rio. Tata’s economic interest in the Benga coking coal project
falls from 52% to 35%. The parent level stake allowed Tata to have an influence
on Riv’s strategy & protect its interest in the Benga JV project. Proceeds from the
deal could lower net gearing/interest cost and lift FY12e EPS by 5%.We retain our
est. as we see downside risks from lower steel prices & higher coking coal costs.
Tata sells 26.74% stake in Riversdale Mining for US$1.1bn
Tata decided to exit Riv after Rio (73.2% stake pre deal) indicated its intention to
delist Riv. Tata will retain its 35% stake in the Benga coal asset JV (502mt
reserves coking + thermal coal). We believe the parent level stake allowed Tata to
have an influence on Riv strategy incl. investment, capital allocation & execution
of the Benga project. Tata remains hopeful of enhancing participation in good faith
in the Benga project under the JV agreement between Tata and Riversdale.
Deal proceeds may be used for deleveraging, funding capex
The gain from the deal is ~US$550mn. Tata may have to pay short term capital
gains tax on shares acquired in FY11 (~3% stake in March). We believe the
proceeds may be used to 1) finance its capex (US$2.2bn p.a. over next 2-3 yrs);
2) deleveraging BS. Assuming the proceeds are used for lowering debt (current
net debt US$10.5bn), net gearing could reduce to ~1.2x from 1.4x in Mar Q.
Moderating steel outlook, maintain Underperform
We remain cautious on Tata due to 1) moderating domestic fundamentals and
lower domestic margins led by lower prices and higher costs; 2) potential margin
squeeze at TSE (Corus) post June Q due to lower prices and lagged impact of
higher input costs; 3) jump in capex intensity and continued risk of dilution.
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