The Tata group is understood to have finalised the financing plan for the proposed takeover of Anglo Dutch steel major, Corus.
ABN Amro, Deutsche Bank and Rothschild, will provide $2.7 billion (Rs 11,953 crore) each to Tata Steel UK under a leveraged buyout (LBO) transaction. Tata Steel (UK) is a special purpose vehicle (SPV) created for the transaction.
Post takeover, Tata Steel's capacity will triple to almost 28 million metric tonnes a year, "The Tatas and the group have finalised the financing option of just above $8.1 billion from European banks. The funds would be released within a month," banking sources familiar with the transaction said.
Sources said that Tata Steel is waiting for technical clearances before making a formal announcement of the funding pattern. A Tata group spokesperson did not respond to an e-mailed questionnaire on the subject. He, however, stated, "It is incorrect. We are yet to finalise the financial closure."
Leveraged buyouts (highly debt-dependent transactions) occur when a financial sponsor gains control of a majority of a target company's equity through the use of borrowed money.
In other words, Tata Steel will use Corus's balance sheet-and future earnings-to raise debt.
The funds are being raised for a ten-year term, but Tatas have the option to accelerate other funding mechanisms and retire this debt, sources said.
The Tata Sons and Tata Steel would be pumping in $4.1 billion to the SPV. "This will be a combination of preferential allotment of Tata Steel shares to Tata Sons and a $2.3 billion loan from Standard Chartered Bank through Tata Steel Singapore Ltd," sources said.
However, sources confirmed that the group is not considering dilution of promoter's equity in any of the group companies.
The group has bought 21 per cent stake in Corus on Wednesday, blocking any potential third-party bid for the Anglo-Dutch steel firm.
The group acquired Corus after nine rounds of a hard-fought auction. The company agreed to pay Corus shareholders 608 pence per share, outbidding its Brazilian rival Companhia Siderurgica Nacional (CSN)'s bid of 603 pence per share.