On May 12, India-based Tata Steel Ltd, the world's sixth biggest steelmaker by capacity, said its wholly-owned indirect subsidiary Tata Steel UK has asked banks to reset the terms of the debt the company incurred to buy Anglo-Dutch steel producer Corus Group PLC. The 2006 acquisition of Corus through Tata Steel UK for £6.7 billion has been the most expensive acquisition carried out by Tata Group to date.
As part of the package to reset payment terms, Tata Steel UK has offered prepayment of over £200 million (US$300 million) on its £3.7 billion debt mountain.
"The company will prepay, voluntarily, over £200 million of the non-recourse debt to continue its objective of deleveraging its European operations," Tata Steel UK said in a statement in Mumbai.
Non-recourse debt is a secured loan that is availed of by pledging collateral but there is no personal liability on the part of the borrower. The loan will be funded through additional support from Tata Steel's Indian entity, which has a significant liquidity buffer.
The UK-based subsidiary added that it did well in 2008-09 and met all its covenant obligations. However, it sought an easing on the terms of the loans as the economic slowdown could hit its earnings, straining its ability to service the loan.
Tata Steel UK has appointed Citigroup, Royal Bank of Scotland and Standard Chartered Bank as the coordinating banks to facilitate the process. The banks with significant interest in the debt have expressed strong support towards the covenant reset proposal.
Tata Steel UK has held meetings with banks in London and Mumbai to discuss the current environment and the potential future impact on some covenant requirements under the company's debt package.
During discussions with lenders on the covenant package, the company has not sought any additional funding as it has sufficient liquidity for its operations.
US$1 = £0.6534