Tata Steel plans to raise Rs 400 crore via debt issue

Shares of Tata Steel retreated from one-week high as the integrated steel maker – the largest among private sector – received approval from the board of directors to raise Rs 400 crore through debt issue.

The committee of directors approved allotment of 4,000 non-convertible debentures having face value of Rs 10 lakh each on private placement basis to identified investors.

The NCDs are proposed to be listed on the Wholesale Debt Market (WDM) Segment of BSE Limited.

Interestingly, last week Fitch Ratings downgraded Tata Steel’s issuer default ratings (IDR)l to ‘BB-‘ from ‘BB’, with negative outlook, on expectations of decline in steel demand in India.

The portfolio review follows the ratings agency’s expectation of a decline in steel demand in India for the year ending March 2021 compared with its earlier assumption of a mid-single-digit volume increase, due to the economic impact of the coronavirus pandemic.

Fitch has also downgraded Tata Steel UK Holdings Limited’s (TSUKH) Long-Term IDR to ‘B-‘ from ‘B’. According to Indian Steel Association, the domestic demand is may fall 8% in the current fiscal.

Tata Steel, a Tata Grop company, market cap stood at Rs 38381.55 crore.
As of 31-Mar-2020, DIIs held 14.31% stake in the firm, while foreign institutional investors held 12.39% and the promoters 34.41%.

Tata Steel reported a subdued Q3FY20 performance on the back of muted realisations at both Indian and European operations. European operations particularly disappointed on the back of £75/tonne sequential drop in realisations. Hence, on the back of a steep fall in realisations, European operations reported a loss at the EBITDA level.

On the back of a weak operational performance, the company reported a loss at the PAT level to the tune of Rs 1229 crs

The revised capex guidance for FY20 is at Rs 9000 crs compared to earlier guidance of Rs 8000 crs. Capex incurred for 9MFY20 is around Rs 7760 crs while the Q3FY20 capex was around Rs 2780 crs

We believe that the Coronavirus epidemic can result in production cuts in China, while potential stimulus package to boost steel demand can result in a shortage of steel. Presently there is a lot of steel inventory piling up in China, which can depress prices in the short term but longer term as the global economy gets normalized demand for steel will see a steady growth in demand ahead.

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