Tata Steel wraps up jumbo refinancing

Indian steel giant Tata Steel wraps up jumbo $3.1 billion refinancing with 34 lenders, giving it breathing room.

Tata Steel, the Indian steel group, has wrapped up its $3.1 billion multi-currency loan facility, attracting a total of 34  lenders and giving it some breathing room as the company struggles with a slump in the demand for steel in Europe.

The company operates in the highly cyclical steel industry and was faced with covenants tightening in 2015. Its refinancing package enables it to push out its debt maturity profile and gives it more flexibility at a challenging time for the company.

The loan, which is expected to be signed at the end of December, is part of a massive $7 billion refinancing package that will go towards paying Corus debt and raising money for Tata Steel's Singapore entity. According to two sources familiar with the matter, it has been allocated to lenders.

"Refinancing gives them some more breathing space before they do a debt reduction through an asset sale or by the improvement of the performance," Vishal Kulkarni, an analyst at S&P, told FinanceAsia.

However, he added that the refinancing has not improved the company's financial ratios and Tata Steel remains highly leveraged, with a debt-to-Ebitda level of about four to 4.5 times.

Tata Steel had plenty of relationship banks to lean on and saw strong commitments of about $900 million from lenders through the syndication process, which launched in mid October. However, only about $600 million was allocated to the banks. "We had to heavily scale back allocations," said one source familiar with the matter.

Across both the senior and general syndication, the company drew commitments in excess of $2 billion and allocated about $1.5 billion.

The deal marked Tata Steel's return to the international loan market for the first time since 2010. The company was borrowing through its Singapore entity Tata Steel Global for the first time, through two facilities; namely a $700 million five-year term loan and a $800 million seven-year term loan. The facilities were unsecured but offered a letter of comfort from Tata Steel. Ten lenders put in commitments during general syndication, according to a second source familiar with the matter. 

Tata Steel was also borrowing through Tata Steel Netherlands. The two facilities were a £700 million six-year revolving credit facility and a €370 million five-year term loan, which were secured by Corus assets and offered a deed of undertaking from Tata Steel.  Seven lenders put in commitments during generation syndication, the second source added.

Only one lender put in commitments for both Tata Steel Netherlands and Tata Steel Global facilities.

During general syndication, Abu Dhabi Commercial Bank, Bank Muscat, Bank of Philippines Island, Commercial Bank International, DNB, Export-Import Bank of India, Fuyo General Lease, Syndicate Bank, Union National Bank and Westpac came in with junior roles.

Bank of Boroda, Burgan Bank, HDFC Bank, ICBC and Intesa Sanpaolo came in too, joining ICICI Bank, ING and SMBC as mandated lead arrangers.

Mandated lead arranger bookrunners were ANZ, Bank of America Merrill Lynch, Bank of Tokyo Mitsubishi, BNP Paribas, Citi, Credit Agricole, Deutsche Bank, HSBC, Rabobank, RBS and Standard Chartered. Axis Bank, Emirates NBD, First Gulf Bank, Mizuho and Societe Generale joined as mandated lead arranger bookrunners during senior syndication, which had launched in August.

The Tata Steel Global five and seven-year facilities paid margins of Libor plus 280bp and 315bp respectively. The Tata Steel Netherlands six and five-year facilities paid margins of 343bp over sterling Libor and 315bp over Euro Libor.

A separate portion of the refinancing package, which was a €1.8 billion seven-year facility underwritten by State Bank of India, had closed syndication previously. 

State Bank of India retained €1.04 billion. ICICI Bank was allocated €300 million, Bank of India, Bank of Baroda, Syndicate Bank, Export-Import Bank of India were each allocated €100 million and SBI Mauritius was allocated €60 million. The facility paid a spread of 420bp over Libor.

Selling assets

With its refinancing package more or less concluded, Tata Steel is expected to sell assets to cut debt. Tata Steel in October announced the signing of a memorandum of understanding with Geneva-based global commodities company Klesch Group to undertake due diligence and negotiations for the potential sale of Tata Steel's long products Europe business.

The potential deal covers covers several UK-based assets including Tata Steel's Scunthorpe steelworks, mills in Teesside, Dalzell and Clydebridge in Scotland as well as other operations in France and Germany.

However, the sales has yet to be concluded. "We are still in the early days in terms of finding what kind of valuations or debt reduction it [the sale of long products Europe] would mean," said S&P's Kulkarni.

The company has already been paring assets. In April, Tata Steel sold its 50% stake in Dhamra Port in India and in 2013, it sold a 4.4% stake in Titan Industries to its parent Tata Sons.

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