Bank promises funds for company’s asset acquisition plans under Insolvency and Bankruptcy Code auctions
Tata Steel has got a letter of comfort from State Bank of India (SBI), which will help it borrow Rs 30,000 crore from the bank to fund acquisitions of assets that come up for auction under Insolvency and Bankruptcy Code (IBC) 2016.
The support, which is an expression of interest to lend was given after Tata Steel was voted as the highest bidder to take over Bhushan Steel. Tata Steel has also put in bids for Bhushan Power and Steel.
Tata Steel did not respond to a emailed questionnaire send to the company.
"We have promised Rs 30,000 crore for the company's acquisitions under the NCLT. The terms of the loan will depend on how much the company wants to avail. They need some credit support and SBI has given it," said an SBI official.
Tata Steel's acquisition of a controlling stake in Bhushan Steel is likely to raise the former's leverage over the next two to three years, ratings agency Fitch had said in a statement.
Bhushan Steel, which had defaulted on a massive debt of Rs 56,079 crore to over 22 banks, was acquired by Tata steel at a discount of over 37%. For the banks, however, it was silver lining as the debt gets transferred to a stronger group and they also get repaid some amount of the outstanding debt.
The provisions against this account will also be reversed during the first quarter, which will end on June 30, 2018, significantly propping up the profits of banks.
State Bank of India had the highest exposure of Rs 12,872 crore to Bhushan Steel, followed by Punjab National Bank at Rs 4,904 crore and ICICI Bank at Rs 2,449 crore.
Tata Steel last month announced that acquisition of Bhushan Steel for a consideration of Rs 32,500 crore, which is expected to give it a 72.65% stake in the company and close to Rs 100% of the economic interest. The company had also said it will finance the buy mostly through internal cash accruals, requiring only Rs 16,500 crore for the acquisition. Lenders will own about 12.24% and the remaining stake will be held by the public.
According to the Tata Steel's presentation the gross debt of the company is Rs 92,147 crore and the cash component is about Rs 22,932 crore at the end of the fourth quarter ended March 31, 2018.
The Bhushan Steel acquisition is expected to complement the existing footprint not just in Odisha but in other markets that Tata Steel operates. The company has said it is hoping to achieve a 100 % ramp-up in the next couple of years.
Banks are also confident of lending to the steel sector as the global economic growth outlook has improved despite protectionism and trade war concerns. The global steel prices have improved with higher demand and lower input prices, resulting in a greater interest in steel assets that have been put for auctions in the NCLT. The domestic steel prices have also increased with the rise in demand.
The company expects the steel prices to be range-bound in the upcoming monsoon season and expects the iron ore prices to remain below $70 per tonne in the long run in a well supplied market which is expected to add to the revenues of Tata Steel.
A NEW MOULD
- Rs 32,500 cr
Tata Steel to pay for 72.65% of Bhushan Steel
- Rs 16,500 cr
It would require to raise for the acquisition
- 12.24%
Lenders would hold in Bhushan Steel
- Rs 92,147 cr
Gross debt of Tata Steel
- Rs 22,932 cr
cash component with the company
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State Bank of India had the highest exposure of Rs 12,872 crore to Bhushan Steel, followed by Punjab National Bank at Rs 4,904 crore and ICICI Bank at Rs 2,449 crore.
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