Banks queue up to finance Tatas' buyout
Indian banks are queuing up to finance India’s largest LBO - the Tata’s acquisition of Corus Group.
By Rajesh Unnikrishnan & Preeti R Iyer, TNN |
MUMBAI: INDIAN banks are queuing up to finance India’s largest leveraged buyout (LBO) - the Tata’s acquisition of Corus Group. The country’s leading financial institutions, like the Export Import (Exim) Bank of India, Bank of Baroda, ICICI Bank (UK) and Bank of India are in talks with Credit Suisse, ABN Amro and Deutsche Bank - the lead financiers and advisors of Tata Steel in the Corus acquisition - to finance the debt part of the deal.
For purchasing a company that is roughly three times bigger than it is in steel output, the Tatas had to find a mechanism to finance a debt package worth $11.3 billion, a large sum given the relatively small size of Tata Steel. The financing is being done with a debt-equity ratio of nearly 2:1. Tata Steel and its investment bankers have already initiated the process of finding the right way to finance the Corus acquisition. In all major deals, lead banks sell down their loans to a host of second-rung banks. Local banks are likely to enter the loan syndication in the second phase. Indian banks are likely to participate in only the senior debt of the tranche.
Confirming the development, a senior official with the Exim Bank said: “We can lend up to $110-125 million towards any single corporate. We have received enquiries from investment banks involved in the Tata-Corus deal, to arrange funds to facilitate the transaction. It seems, the lead arrangers are trying to arrange for $1-2 billion each from a consortium of banks, and thus reduce their debt exposure.”
The foreign players are discussing with local institutions on the preferred pricing and as to how much can be mobilised from domestic lenders. Exim will look at entering this deal if the pricing is appropriate, though talks are still in early stages, the official added.
The key aspect of the deal is setting up loans and fixing a repayment schedule, after taking into account Corus’ complex mix of liabilities (including pension) from its plants in the UK and the Netherlands. Investment banking firm Credit Suisse was called to specify a mechanism for raising a loan of around $7 billion, which formed the basis of the Tata Steel bid for Corus.
Interestingly, Credit Suisse was also an advisor to Corus. The UK watchdog had permitted Credit Suisse to act for both sides. Deutsche Bank and ABN Amro - two of Tatas’ key advisors on the Corus deal - also joined to organise a part of the loan. Standard Chartered Bank has agreed to provide $375.24 million subordinated debt financing for the acquisition.
rajesh.unnikrishnan@timesgroup.com
For purchasing a company that is roughly three times bigger than it is in steel output, the Tatas had to find a mechanism to finance a debt package worth $11.3 billion, a large sum given the relatively small size of Tata Steel. The financing is being done with a debt-equity ratio of nearly 2:1. Tata Steel and its investment bankers have already initiated the process of finding the right way to finance the Corus acquisition. In all major deals, lead banks sell down their loans to a host of second-rung banks. Local banks are likely to enter the loan syndication in the second phase. Indian banks are likely to participate in only the senior debt of the tranche.
Confirming the development, a senior official with the Exim Bank said: “We can lend up to $110-125 million towards any single corporate. We have received enquiries from investment banks involved in the Tata-Corus deal, to arrange funds to facilitate the transaction. It seems, the lead arrangers are trying to arrange for $1-2 billion each from a consortium of banks, and thus reduce their debt exposure.”
The foreign players are discussing with local institutions on the preferred pricing and as to how much can be mobilised from domestic lenders. Exim will look at entering this deal if the pricing is appropriate, though talks are still in early stages, the official added.
The key aspect of the deal is setting up loans and fixing a repayment schedule, after taking into account Corus’ complex mix of liabilities (including pension) from its plants in the UK and the Netherlands. Investment banking firm Credit Suisse was called to specify a mechanism for raising a loan of around $7 billion, which formed the basis of the Tata Steel bid for Corus.
Interestingly, Credit Suisse was also an advisor to Corus. The UK watchdog had permitted Credit Suisse to act for both sides. Deutsche Bank and ABN Amro - two of Tatas’ key advisors on the Corus deal - also joined to organise a part of the loan. Standard Chartered Bank has agreed to provide $375.24 million subordinated debt financing for the acquisition.
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rajesh.unnikrishnan@timesgroup.com
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