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

In one of its biggest fund raising exercise in recent times overseas, four Tata Group companies have hired bankers to raise a record $2.5 billion this quarter. Tata Steel, Tata Motors, Tata Power and Tata Communications are raising money to retire their old loans.

Statistics collated by Bloomberg says all Tata group companies combined 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, bankers said while Tata Motors’ owned TML Holdings has launched a $250 million last month.

The gross debt of the four companies is a whopping Rs 2,08,229 crore as on fiscal 2015 (see box) and these companies are taking several steps to bring down their debt levels including sale of assets and reduce interest costs by retiring old loans with cheap new loans, bankers said.  

Tata Steel, for example, is reducing capacity in UK and has signed the 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 JLR stable and in India. A bulk of Tata Motors loans were taken by the company when it took over Jaguar Land Rover and is now refinancing its older loans with new loans at the rate of Libor plus 165 basis points, which bankers say, is good rate considering the volatility in the overseas markets.  

Tata Power, on the other hand, 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 a lot longer than originally 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 was due next month, it’s raising the funds at the rate of Libor plus 195 basis points before the deadline.

The net debt of Tata Communications as on December 2015 was $1.48 billion, up marginally when compared to last year and previous quarter as well. Analysts said net debt trends are 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 company has also revised its core business capital expenditure guidance downwards to $300 million from $350 million for fiscal 2016. It is also selling its data centre business to raise funds and is currently in talks with bidders to sell the asset.