Tata Steel Plans First Dollar-Denominated Bond Sale in 3 Years

Tata Steel Ltd., India’s largest producer of the alloy, plans to raise as much as $1 billion selling high-yield bonds, according to three people familiar with the matter.

The company is in talks with banks to arrange the sale, said the people, asking not to be identified because the terms aren’t set. The banks may be hired by early next month and proceeds from the sale will be mainly used to refinance loans, the people said. Charudatta Deshpande, Mumbai-based spokesman at Tata Steel, declined to comment.

Tata Steel joins Vedanta Resources Plc, Jindal Steel & Power Ltd., Reliance Industries Ltd. and Bharti Airtel Ltd. in tapping overseas markets for funds to refinance debt or pay for capital expenditure. The Mumbai-based company separately is also raising money for it’s new factory in the eastern state of Odisha. It last sold dollar-denominated bonds in November 2009, according to data compiled by Bloomberg.

“If the bond proceeds are used for refinancing, the company’s debt level will remain unchanged and hence that will not result in an improvement of the company’s financial metrics,” said Mehul Sukkawala, a Mumbai-based credit analyst at Standard & Poor’s, which has a negative outlook on Tata Steel.

Tata Steel fell 2.5 percent to 306.55 rupees at the close in Mumbai yesterday. The stock has slumped 28 percent this year, compared with a 3.7 percent decline in India’s benchmark S&P BSE Sensex.

New Factory

Tata Steel plans to raise as much as 130 billion rupees ($2.4 billion) in the next six months to partly fund a 6 million metric-ton steel factory to be built in phases, the first of which will be completed by August 2014, Chief Finance Officer Koushik Chatterjee said on a conference call last month.

Tata Steel needs to redeem a total of $5.5 billion bonds and loans by November 2016, according to data compiled by Bloomberg. The company raised $547 million selling 4.5 percent convertible notes in 2009. Most of the group’s net debt of $10.5 billion was taken to fund the $12.9 billion acquisition of steelmaker Corus in January 2007.

Steelmakers in Europe, where Tata generates two-thirds of its output, are grappling with excess capacity, falling prices and rising operating costs. The region has a capacity to make about 210 million tons of steel a year, while demand in a “normal market” is 150 million to 160 million tons, according to industry lobby group Eurofer.

The alloy maker’s losses, including those of Corus, renamed Tata Steel Europe Ltd., widened to 7.63 billion rupees in the three months ended Dec. 31 from 6.03 billion rupees a year earlier, the company said in a statement on Feb. 13. The median estimate of 25 analysts in a Bloomberg survey was for a loss of 1.99 billion rupees.

Vedanta Resources, the oil and metals producer controlled by Indian billionaire Anil Agarwal, is seeking about $3.5 billion of loans in its biggest refinance plan to help extend maturity of the debt, three people familiar with the matter said on March 13. The London-based company has hired Bank of America Corp., Barclays Plc, JPMorgan Chase & Co., Royal Bank of Scotland Group Plc and Standard Chartered Plc to arrange the financing, the people said.