The deal was initially targeted at $650 million but was upsized by $75 million following the bookbuild, and then by another $150 million after the greenshoe was exercised. The deal, which will help Tata Steel to fund the $12 billion purchase of UK steelmaker Corus Group, received strong demand from the US.
Tata sold the convertible securities to stockholders for about Rs867 ($21.48) a share, or about a 35% premium to the Rs650 closing price on the National Stock Exchange of India on August 6.
Citi was the sole global coordinator, with ABN AMRO, Citi and Standard Chartered acting as joint bookrunners.
People close to the deal say that over 50 global investment funds offered to buy more than twice the securities that were available.
In tough market conditions, insiders say that two elements of the deal made it particularly attractive to investors. For one, it was 100% backed by a letter of credit from Standard Chartered, which gave investors confidence on credit support for the entire transaction. A second confidence-builder was the strong equity story of Tata Steel post the Corus acquisition. Given that the acquisition story grabbed global headlines, there was investor familiarity with the group.
Of note as well, is that Tata Steel used a structure Citi calls a convertible alternative reference securities, or CARS. Citi initially developed this for a Tata Motors deal in late June. It is designed to minimise the potential dilution for the controlling shareholder. The CARS structure allows Tata Steel to deliver non-voting shares upon conversion in the event that there is an existing float of these non-voting shares. Investors are compensated for the discount that the non-voting share trades versus the ordinary share, therefore allowing Tata Steel to get aggressive up-front pricing for the convertible.
The bonds were priced with a yield to maturity of 5.15% after being offered in a range between 4.75% and 5.25%. The conversion premium was fixed at launch at 35%. Given that the bonds arenÆt convertible until September 4, 2011, there is no call option.
ôSecond time around the CARS structure is gaining more traction amongst issuers and investors alike,ö says a person close to the deal.
The funds will be used as part of Tata SteelÆs ongoing refinancing efforts to cover its deal to pay for Corus (the former British Steel), which it agreed to buy in February when it outbid BrazilÆs Cia Siderurgica Nacional, or CSN. That deal moved Tata up from its ranking as the 56th biggest steel producer to number six in the world.