Mumbai, Oct. 20: Tata Steel has set up a wholly owned subsidiary, Tata Steel UK, to take over Corus. The overseas company will receive an equity infusion of $2 billion from Tata Steel and borrow the rest of the money to finance its $10-billion (£5.33 billion) acquisition of Corus.

Tata Steel said it would make a cash contribution of £1836 million to Tata Steel UK, which would also receive a subordinated debt of £196 million from Standard Chartered Bank.

While it agreed today to take over Corus for $8.04 billion (£4.3 billion), Tata Steel said the existing debt of Corus, including its public debt, would be refinanced and it would pay £126 million to Corus’s pension scheme.

It is understood that the equity infusion of $2 billion that Tata Steel proposes for Tata Steel UK would be funded by internal accruals and from the preferential offer made by Tata Steel to Tata Sons.

In July this year, the board of Tata Steel decided to issue 2.70 crore shares to Tata Sons for Rs 516 per share aggregating Rs 1,393.20 crore and 2.85 crore warrants, with each warrant entitling Tata Sons to subscribe to one ordinary share of the company.

There are reports that Tata Sons may also consider divesting a part of its stake in IT services giant, Tata Consultancy Services (TCS), to repay a part of the debt, but could not be independently confirmed.

Sources close to Tata Steel said the equity infusion of $2 billion would not hit its balance sheet, though neither Tata Steel officials nor bankers associated with the deal could be contacted in this regard despite repeated attempts by The Telegraph.

Tata Steel said that in addition to the equity infusion, the deal would be financed by a borrowing of £3.3 billion by Tata Steel UK.

“These debt facilities will also be used to refinance the majority of the existing debt of the Corus Group, provide working capital for the Corus Group after completion of the acquisition and pay certain fees and expenses associated with the acquisition,” Tata Steel said.