Tata Chemicals Ltd, the Tata group“s soda ash and fertilizer maker, on 24 November 2008 said it has raised USD 300 million to retire a bridging loan taken in January 2008 to partly fund its USD 1.05 …
Tata Chemicals Ltd, the Tata group“s soda ash and fertilizer maker, on 24 November 2008 said it has raised USD 300 million to retire a bridging loan taken in January 2008 to partly fund its USD 1.05 billion acquisition of Wyoming, US-based soda ash maker General Chemical Industrial Products Inc. The fund-raising in the US could help lift the cloud over Tata Chemicals on account of its ability to service its debt in the coming years. The stock price has fallen substantially in 2008 on fears that the company would find it difficult to raise alternative funding to replace the bridging loan. “It is the first transaction in the US after the collapse of Lehman Brothers,” P.K. Ghose, executive vice-president and chief financial officer of Tata Chemicals, said at a press conference. Mr. Ghose declined to give details on the interest rate, saying it may prejudice the efforts of other Tata group companies to raise similar funding to replace costly bridge financing arrangements made for overseas acquisitions. One of the bankers involved in the deal said the fund was raised at London interbank offered rate, or Libor, plus 400 basis points. One basis point is one-hundredth of a percentage point. The anonymous source said it was a good rate in the current market conditions. The six-month overnight Libor, the interest rate at which banks lend to one another, was 2.575% on 24 November 2008. “This will definitely be a benchmark transaction not only for our group but for all transactions coming out of India,” Girish Nadkarni, vice-president, finance, Tata Chemicals, said during the press briefing. Tata Chemicals funded the General Chemical acquisition in three tranches: USD 475 million raised through a five-year external commercial borrowing, USD 180 million through internal resources, and USD 350 million through a bridge loan. The USD 350 million bridging loan was due for repayment in September 2008, but the firm had asked for an extension of three months, which would have ended on 25 November. Tata Chemicals will pay USD 50 million out of the USD 350 million bridging loan from internal resources. The USD 300 million transaction to replace the bridging loan is significant as the onus of servicing the debt now lies with the US subsidiary General Chemical and not with Tata Chemicals, which was the guarantor of the loan, Mr. Ghose said. The new loan is so structured that in November 2009, General Chemical would have to repay 10% of the loan, 12.5% in 2010, and 15% the subsequent year. The loan will mature in 2014. The loan interest rate will decrease as Ebitda (earnings before interest, taxes, depreciation, amortization) margins increase, Mr. Ghose said. Banks involved in the transaction, led by Standard Chartered Bank, included ABN Amro Bank, ANZ Banking Group, HSBC Bank, Calyon and State Bank of India. In a recent communique to all the 96 chief executives of the Tata group, Ratan Tata, chairman of Tata Sons Ltd, the main holding company of the group, had asked them to “…draw down all loans/lines of credits from banks and institutions to the maximum extent possible…(and)… expeditiously finalise pending loan and funding agreements, even if they involve accepting higher interest rates”. Mr. Tata, in his letter dated 6 November 2008, referring to the liquidity problem and slower consumer demand, had feared that this scenario may not improve substantially for the next 12 months. “Accordingly, I believe that each of our companies needs to undertake a critical review of their cash flow requirements business plans with defined strategies… Failure to manage this crisis could result in irretrievable positions,” Mr. Tata warned his chief executives. Mr. Ghose also reiterated at the meeting that Tata Chemicals has put on hold the expansion of its soda ash plant in Mithapur in Gujarat to 1.2 million tonnes a year from 975,000 tonnes because of the global economic slowdown.