Tata Steel’s debt refinance plan may lower interest costs
Since the company's cash flow has improved, it should be able to refinance at a lower cost, say analysts
Mumbai: Tata Steel Ltd’s plans to refinance nearly $5.6 billion debt could lower interest costs for the company as the cost of new debt for the firm has come down thanks to improving cash flow, analysts said on Thursday.
Late on Wednesday, Bloomberg reported that India’s largest steel maker had hired banks to raise the equivalent of $5.6 billion, the highest since the acquisition of Corus Group Plc in 2007, to refinance debt taken to fund the purchase of Europe’s second largest steel maker. Tata Steel, with a total steel capacity of 29 million tonnes, will refinance the debt partly via foreign currency bonds and partly via foreign loans, the report said.
“Since Tata Steel’s cash flow has improved, it should be able to refinance at a lower cost and could save 50-75 bps (basis points) on interest cost," said Rakesh Arora, managing director and head of research at Macquarie Capital Securities (India) Pvt. Ltd. “It’s a refinance and not an increase in debt position."
“It (the cost of debt) will be subject to how the management refinances debt based on its tenure," said Ritesh Shah, metal and mining analyst at Espirito Santo Securities India Pvt. Ltd, when asked by how much interest costs for the company could fall.
“We won’t be surprised if debt is moved away from Tata Steel Europe to other entities, effectively making the covenants look better at Tata Steel Europe level," Shah added.
The company had net debt of ₹ 70,526.27 crore as of 31 March 2014 and a debt-to-equity ratio of 1.93. Tata Steel has not responded to a questionnaire emailed on Wednesday seeking details on the fund raising.
Shares in Tata Steel closed 2.18% higher at ₹ 567.05 apiece on BSE. The S&P BSE Sensex closed 0.48% higher at 26,271.85.
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