Tata steel plans to raise $5-$5.5 billion in the current fiscal (2014-15) as part of its debt refinancing exercise and hopes to save 25-30 basis points in interest rate at the end of this exercise.
At the company's 107th annual general meeting held in Mumbai, Kaushik Chatterjee, group CFO, Tata Steel, said the recent $1.5 billion bond issuance was part of the company's strategy, and is more likely to raise another $4 billion over the course of the year. In the company's first quarter earnings presentation, the steelmaker said it had undertaken $7 billion worth of refinancing exercise.
"$7 bln is all inclusive, including the funding required by our overseas and mining ventures. Out of this, only refinancing is about 3 billion pounds, which is about $5.5 billion, which we would be raising over the course of current fiscal," Chatterjee said.
The bond issue of $1.5 billion would enable the company to save as much as 40-45 basis points on interest rate.
"$1.5 bln is part of a new financing and we got a phenomenal response from investors, therefore we were able to tighten the spread as compared to our initial guidance and final pricing by about 40-45 basis points. Hopefully with the larger part of financing which is bank financing, we should be hopefully done this year. That should give us similar level of benefit over the long term," Chatterjee added.
Tata Steel's consolidated interest rate on debt is around 8% which is a mix of foreign and Indian debt. Analysts said that the company's interest rate on an average is around 6.2%. "The improvement of 25-30bps wouldn't materially lower the interest costs but it is a step in the right direction. Improvement in European profitability witnessed in 1QFY15 along with strong demand scenario expected in domestic market would help the company lower its interest costs on total $7 billion debt, which is due for refinancing," Giriraj Daga, senior analyst with Nirmal Bang, said.
The steel majors' debt refinancing exercise is mainly aimed at bringing down high European operations debt, which has been making losses since past few years due to slowdown in that economy. Chatterjee said that European operations were improving but at a slower pace due to tough market condition.
"Spread between the raw material prices and steel prices has continued to remain historic law, so its slow grind upwards," he said.
Tata Steel plans to spend capital expenditure of around Rs 12,000 -14000 crore in the current fiscal of which majority would be incurred for the company's Kalinganagar project in Odisha.
"We will commission the facility at the end of this financial year in stages, but not any significant volume from Odisha for this financial year. Kalingangar phase I expansion is budgeted to be Rs 25000 crore. Once we complete that, we will start work on phase II, the engineering work on phase II has already started," TV Narendran, managing director of India and South East Asia operations said.
The capex for current fiscal will be met mostly through internal accruals and project finance. Narendran stressed that the company had enough iron ore to meet first year operations of Kalinganagar's 3 million tonne plant.
Even as Tata Steel is trying to start operation at Kalinganagar at war speed, it might be looking at serious raw material supply issue. In May, the Supreme Court ordered closure of some of the captive mines of the company which used to supply ore to its Jameshedpur's 10 MT steel plant, but were restored within a month following Odisha government's express orders. However, the company did not receive any go ahead for two of its mines. The express orders for the Khondbond Iron Ore Mines and Sukinda Chromite Mines are still pending with the state government.
"We are in discussion with the Odisha government and we hope, we resolve this issue. It (Khondband) was a mine which was being developed, we are producing about 1 million tonne there, as we are in the process of developing this mine to service the Kalinganagar plant," Narendran cleared to reporters.