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Tatas steel up for Tisco rights issue

Tata Sons Ltd, the holding company that controls the Tata empire, may increase its equity holding in Tata Steel, reports Arun Kumar.

business Updated: Apr 15, 2007 21:41 IST
Arun Kumar

Tata Sons Ltd, the holding company that controls the Tata empire, may increase its equity holding in Tata Steel, after the board of the country's largest steel maker meets on Tuesday to consider a rights issue of shares, which is planned as part of efforts to help the ongoing acquisition of Anglo-Dutch Corus Group Plc by the Tatas.

On current reckoning, the plan is to increase Tata Sons' stake in Tata Steel to 40 per cent, while the current holding of 30.5 per cent is expected to increase to 33.7 per cent after conversion of warrants issued in 2006.

In a bid to avoid dilution of promoters' holding, the company is expected to come out with a combination of an issue of equity-linked instruments on rights basis to the existing shareholders and an issue of convertible warrants on preferential basis to be converted in the next financial year in favour of the promoters.

Industry sources said that the rights issue would be done around the current market price, which is currently around Rs 510 per share. While a market price will likely lead to shareholders renouncing their rights entitlements, the Tatas may step in to buy the shares dropped, enabling them to increase their stakes without the pain of being obliged to buy up shares under the takeover code.

The ratio for the rights issue is expected to be around 1:5 or 1:4 - meaning one equity-linked instrument for every five existing equity shares or four existing equity shares.

The Tatas are expected to put in more than Rs 5,000 crore in Tata Steel to partly fund the equity part of the special purpose vehicle (SPV) created to fund the Corus acquisition.

In May last year, Tata Steel had issued 2.7 crore equity shares at Rs 516 to its promoters (5 per cent of paid-up capital on preferential basis, and 2.85 crore convertible warrants, to be converted after April 2007).

Since the route of promoters’ acquisition of 5 per cent under the creeping acquisition route is already exercised in the warrant issue, any fresh issue of equity shares on preferential basis to the promoters may trigger the takeover code.

Tata Steel will have left with little option but to come out with an issue of equity shares on rights basis. However, Tata Steel may issue fresh warrants, which can be converted into equity shares up to five per cent of the expanded capital (after the rights issue) in the next financial year.