Mittal effect? Tatas move to ringfence Tata Steel

The only safeguard is to hike promoters’ pie, says Ratan Tata.

MUMBAI: In a bid to keep predators at bay and prepare itself for a humongous organic and inorganic expansion in India and China, Tata Steel, the largest private sector steel company in the country, gained approval from shareholders to make a preferential offer to Tata Sons, the main group holding company.

DNA Money was the first to report the move by the Tatas on June 23.

“The steel industry is highly fragmented and considerably vulnerable. The only safeguard is to increase promoters’ stake over time,” Ratan Tata told shareholders at the annual general meeting of Tata Steel in Mumbai on Wednesday.

The preferential offer will see Tata Sons and affiliate companies’ stake in Tata Steel rising by about 7%, to an almost impregnable 34%.

“Tata Sons is also willing to consider shareholders approval for a 10% preferential issue — at the price determined by Sebi according to a formula at what I think at today’s price is Rs 515 per share — in two tranches,” Ratan Tata said.

Tata Steel’s move to make a preferential offer should also seen in the light of the world’s top steel maker, Mittal Steel — which agreed to a $32.54 billion deal to acquire rival Arcelor. The new entity becomes a formidable force with a market share of 10%.

Lakshmi Mittal has indicated his interest in China and India. This doesn’t mean that Tata Steel is under threat, but once Mittal sets foot in India, a lot of industry equations will change.