Photographer: Henrik Kettunen/Bloomberg
Tata Steel Seeks to Raise $2 Billion to Fund India ExpansionBy
Board approves plan to raise capital via a rights offer
Company wants to raise domestic capacity by 5 million tons
Tata Steel Ltd. plans to raise as much as 128 billion rupees ($2 billion) in a rights offer to help add capacity in India, where demand for the alloy is forecast to almost triple by the end of the next decade.
The money will be used to build and buy mills as well as repay debt, the company said in a statement Tuesday. The board also approved increasing the capacity of its Kalinganagar plant in Odisha by 5 million metric tons. The addition over four years at a cost of 235 billion rupees would boost Tata’s local capacity to 18 million tons, it said.
Tata Steel has sharpened its focus on the Indian market after selling unprofitable assets in the U.K. and agreeing to merge its European operations with Thyssenkrupp AG. The Mumbai-based company and rivals including JSW Steel Ltd. are betting on rising sales from Prime Minister Narendra Modi’s plans to build roads, ports and power plants in the world’s second-most populated nation, and growing demand for automobiles and homes.
The steelmaker is raising production capabilities to meet the requirements of the automotive, engineering and other value-added industries, it said in the statement. The cost to ramp up its Kalinganagar facility includes raw-material capacity expansion, upstream and midstream plants, and a cold-rolling complex, it said.
Although the fund-raising might allow Tata to bid for stressed assets elsewhere in the steel sector, it could also dilute earnings per share in the near term, while volumes from an expanded Kalinganagar “will be far in the future,” Bhaskar Basu, an analyst at Jefferies Group LLC, said in a note.
Its shares slid 1.6 percent to 698.95 rupees in Mumbai on Wednesday, halting four days of gains. Tata Steel, with an annual capacity of 13 million tons, is India’s third-largest producer after JSW Steel and Steel Authority of India Ltd.
India’s steel consumption is forecast to rise to as much as 240 million tons by 2030, with most of the metal to be used in construction, according the Indian Steel Association.