Borrower of the week -- Tata Sons

Tata & Sons talks to FinanceAsia about its borrowing strategy.

Tata & Sons, the holding company of India's second largest conglomerate, made its debut in the overseas markets at the start of October when it raised $100 million through a five-year syndicated loan. FinanceAsia talks to Phillie Karkar, vice president, and Farokh Subedar, senior vice president.

This was your first time raising funds overseas. How did it go?

PK: Yes, it's a debut transaction for us. We are very happy with the response and Barclays has been very helpful in doing a very professional job.

What are the funds going to be used for?

For general corporate purposes, which is the stated purpose in our application and so we will use it to repay our high-cost borrowing and for our internal general corporate purposes.

What prompted the decision to go offshore?

PK: The major decision was to take advantage of the interest rate arbitrage available in the overseas markets, and also to broadbase the set of lenders we have. So far Tata Sons, as a holding company in India, was basically only tapping the domestic market. By going outside India we were able to bring in a new set of lenders.

FS: Primarily it would be the issue of rates, because the tightening of the rupee has mad overseas borrowing attractive now. The spread that we get over Libor is extremely attractive and the rates for covering forwards are also very attractive so really you could practically take a view, cover yourself for the principal and keep your interest position open at a very attractive rate; at least 200bp lower than what you will get in the Indian context.

What are the restrictions on forex borrowing for Indian corporates?

PK: At that time, you could raise up to $100 million and get autmoatic approval from the Reserve Bank of India. That has now been revised down to $50 million, but when we applied it was still $100 million. Anything beyond the automatic-approval limit has to go through the ministry of finance for permission, so we conciously took a decision that we would only do $100 million, and we have stayed within that.

Which markets are open to corporate India at the moment?

PK: All of them. But we have basically used Singapore as a hub and we have had participation from a lot of Middle East banks and south-east Asian banks and, of course, Barclays was in the transaction, two Indian banks and two French banks.

What are your credit ratings?

PK: Our ratings are AAA for the domestic market and the same for all our borrowings - short-term, medium-term and long-term. For the overseas borrowing, the syndicated term-loan, we did not need a rating so we haven't taken one.

How did you sell Tata Sons to the overseas lenders?

FS: Well, Tata Sons is the holding company of the Tata group. We have a very diverse portfolio, spread across steel, automobiles, IT, telecommunications, hotels, chemicals. And in that sort of a context I think the diversity of our portfolio allows us to weather any kind of sesivitive, cyclical effects in any particular industry. Finally, it's the Tata brand which gives sells us to investors and that came out very loud and clear when we were meeting with the foreign investors.

PK: Also, the credit is very good in that the financials are very strong. That has been recognized in the local market and spoke for itself, aside from the fact that the brand is very good. And you may be surprised to know that our brand is also well-recognized in the overseas market.

What amount of outstanding debt do you have?

PK: We have a gearing of about 0.7 or 0.8:1, which is very healthy in the Indian context. If you want a figure it's about Rp3,000 crore ($665 million). In fact, that's pretty healthy by any standards, especially considering we're a holding company with a need to leverage ourselves to make investments. And that's also pretty well recognized by the rating agencies.

What are borrowing plans going forward?

PK: Generally it would be fair to say that we will take advantage of the market as and when it affords opportunities to us, which is what we've been doing in the past. I dare say if a similar opportunity arose and we needed to we would not hesitate in entering the market. I can't put a figure on it.

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