Tata Steel’s UK unit is raising about $275 million (£200 million) through an offshore syndicated loan from a group of banks including Axis Bank, Citi, Mitsubishi UFJ Financial Group (MUFG), and HSBC, three people familiar with the matter told ET.
The proceeds will be used for working capital credit even as the business is gradually returning to normalcy with restrictions on people’s movement being lifted, they said.
“The loan is marked as revolving credit facility (RCF), and the syndication agreement was signed last week,” one of them told ET.
The loan – denominated in pound sterling – has likely been priced at 175 basis points (1.75 percentage points) higher than the London Interbank Offered Rate (Libor), a global rate gauge.
“The discussions with banks are in relation to working capital limits provided by a consortium of banks for the UK business, which may or may not be utilised as part of day-to-day operating requirements,” a
spokesperson said. “Tata Steel continues to be focused on deleveraging its balance sheet.”
Individual banks could not be immediately contacted for comments.
An RCF offers more flexibility than a term loan. It enables a company to draw the credit, use it to fund its business, repay it, and then withdraw it again whenever it requires.
With rates plunging to record lows, any offshore credit offers cheaper funding cost, particularly when it does to have any obligation for covering any foreign exchange risk.
The three-month Libor nearly halved since beginning of this calendar year to 0.13% in June.
The UK business is part of Tata Steel Europe (formerly Corus Group). The company is currently in the process of splitting its Europe business into Tata Steel Netherlands and Tata Steel UK.
The transformation programme is focused on building a profitable, resilient and sustainable business in the future, Tata Steel chairman N Chandrasekaran had said about two weeks ago.
Tata Steel is reportedly renovating its Corby steel tube making site in the UK’s East Midlands as it sees future potential.
Work at the 150-acre site – which produces vital products for everything from sports stadium and iconic skyscrapers such as the Shard in London to hospital beds and renewable green energy schemes around the world – resumed a few months ago.
Price of iron ore, a key ingredient in steel making, in the global market shot up to a record high two months ago amid rising demand for steel. Steel companies have been trying to benefit out of it by increasing steel prices.
Fitch Ratings had in May upgraded Tata Steel’s issuer default rating (IDR) to ‘BB’ from ‘BB-’. The global rating agency, in a note on May 19, had cited “significant improvement” in the company’s financial profile — driven by a jump in margins following a faster-than-expected recovery in the global steel market from the impact of the pandemic — and “turnaround in European operations” among others for the upgrade.
Earlier in April, Moody’s Investor Services had downgraded Tata Steel UK Holdings Ltd’s corporate family rating (CFR) to B3 from B2.