Four Tata Group companies to raise $2.5 bn via foreign loans

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Four Tata group companies have hired bankers to raise $2.5 billion this quarter, one of their biggest overseas fundraising exercises in recent times. Tata Steel, Tata Motors, Tata Power and Tata Communications are raising money to retire their old loans.

Statistics collated by Bloomberg says Tata group companies had raised $1.06 billion in 2015. While Tata Steel has launched a $1.5-billion deal in general syndication in January, Tata Power has hired seven banks to raise $460 million for a loan, which is due to be paid next month. Tata Communications is also marketing a five-year loan to raise $250 million, while Tata Motors-owned TML Holdings has launched a $250-million loan last month.

The gross debt of the four companies was whopping Rs 208,229 crore in FY15 (see box) and these companies were taking several steps to bring down debt levels, including sale of assets and reduction of interest costs by retiring old loans and replacing them with cheaper new loans, bankers said.

Tata Steel, for example, is reducing capacity in the UK and has signed a letter of intent with Greybull Capital for the divestment of long products business in Europe. Besides, by December-end, Tata Steel had also successfully refinanced the offshore debt facilities of $1.5 billion, resulting in significant cost savings. Tata Steel is getting an average rate of Libor plus 235 basis points for its two loans of $750 million each.

While Tata Steel is struggling with its European operations, Tata Motors needs money to launch new models from its Jaguar Land Rover stable and in India. A bulk of Tata Motors’ loans were taken by the company when it took over JLR. It is now refinancing its old loans with newer ones at the rate of Libor plus 165 basis points, which bankers say, is good rate considering the volatility in the overseas markets.

Four Tata Group companies to raise $2.5 bn via foreign loans

On the other hand, Tata Power needs money for a loan due next month even as it continues to close the Arutimin coal mines at the original sale consideration of $500 million. The continued delay in closing the deal was on account of re-structuring of assets and other credit approvals that have taken longer than anticipated. Analysts said the impairment of coal asset ownership for declining prices of imported coal does not include any impairment for the coal assets in Arutimin. But as the $500 million loan is due next month, the company is raising the funds at the rate of Libor plus 195 basis points before the deadline.

The net debt of Tata Communications as of December 2015 was $1.48 billion, up marginally when compared with last year and previous quarter as well. Analysts said net debt trends were falling behind the company’s intention of business-led deleveraging. The company’s earnings statement said the increase in net debt also reflects increasing working capital requirements as business mix shifts towards enterprise data business. The new loan at the rate of Libor plus 135 basis points will be used to refinance old loans.

The firm has also revised its core business capital expenditure guidance downwards to $300 million from $350 million for FY16. It is also selling its data centre business to raise funds and is currently in talks with bidders.