Tata Steel gets lenders' nod for easier Corus loan terms

MUMBAI: Tata Steel UK, an indirect subsidiary of Tata Steel has got lenders approval to reset the covenants for its GBP 3.7 billion (today about $5.6 billion) loan that was taken at the time of the Corus acquisition. The approval from the lenders, which was scheduled on May 29, would mean that all earnings-related covenants for Tata Steel UK will not be tested till March 2010.

Covenants are typically agreements between a company and its lender, that stipulates the conditions under which the loan is granted and could include restrictions on further borrowing. Tata Steel UK said the covenants would remain suspended till 2010 and subsequently resume with "significantly greater flexibility than in the case of the original covenants."

There will also be no increase in interest costs for the remaining tenure of the loan, Tata Steel UK said.
The steelmaker however added that the reseting of covenants doesn���t imply additional finance from the lenders or rescheduling of debt servicing commitments.

"This positive response from our lenders is a mark of their faith in our business, even as we explore options for Teeside Cast Products," Corus CEO Kirby Adams said in a statement.

The earlier deadline for reseting the covenants was May 22. Tata Steel had borrowed ��3.67 billion through non-recourse finance, to buy Corus in 2007, that catapulted the Jamshedpur steelmaker to the world���s fifth largest steel company by capacity at 28 million tonnes.

Tata Steel's lending syndicate is led by Citigroup Inc, Royal Bank Group PLC and LN Standard Charted Bank. As part of the package, Tata Steel will invest GBP 425 million in Tata Steel UK in a phased manner, of which around GBP 200 million will be used to prepay debt and de-leverage the balnce sheet.