And now, to raise the funds

MUMBAI: The Tata Group is raising over $10bn for the Corus deal. Of this $8.04bn will go in buying out the shares and the balance will be towards refinancing loans of Corus.

The entire financing structure is being broken up into two parts — $3.5-3.8bn infusion from Tata Steel and another $5.6bn through a leveraged buyout (LBO) structure.

Tata Steel will be putting in $2bn as its equity contribution into the Singapore based special purpose vehicle (SPV), Tata Steel Asia Holdings. The balance contribution of $1.5-1.8bn by Tata Steel will be through a bridge loan.The two advisors to Tata Steel with regard to this deal are Deutsche Bank and ABN Amro.

The LBO is being financed by ABN Amro Bank, Deutsche Bank and Credit Suisse, while Tata Steel’s equity component is being bridge-financed by a syndication of banks led by ABN Amro and StanChart.

The $2bn infusion comprises $171m in cash which the company has in its books, mutual fund investments of around $466m and $700m that was pumped in by Tata Sons through a preferential issue and conversion of warrants (which is yet to happen). The balance will come from a $750m loan syndication which the company arranged few months ago.

Of the $1.5-1.8bn which is being raised through the bridge loan route, around $350m will be through subordinated debt. The remaining money would be through bridge loan which be repaid in about a year. The company will possibly repay this loan through its internal accruals or through fresh issuances.

The Singapore SPV would then fund the UK SPV, Tata Steel UK.“Tata Steel shareholders have given an approval to raise more resources. We are looking at various possibilities and a decision is yet to be taken,” said Koushik Chatterjee, vice-president-finance, Tata Steel.

The company is raising another $5.6bn loan on a non-recourse basis through a leveraged buyout. This means that the loan would be serviced from the cash flows of Corus. Tata Steel is not issuing any guarantee to the bankers. This debt component is broken up as senior term loan of $3.05bn and high yield loan (mezzanine bridging loan facility)
about of $2.6bn.

The interest rate on the senior term loan is likely to have a spread of 200-225 basis points over Libor, while that for the high-yield loan would be at around 400-450 bps over Libor. The six months Libor was at 5.41%.

The debt in the SPV has a long-term tenure and is being raised in tranches of 7 to 10 years. However, this can be prepaid. Further, there will be a working capital loan of $669m. Corus, in its books, is already carrying a loanof $2.7bn and these loans will alsobe refinanced.