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Promoters plan stake hike in Tata Steel

Calcutta, Sept. 16: Tata Group plans to raise its stake in Tata Steel by another 10 per cent to fend off takeovers.

The group held 33.77 per cent in the company on June 30, according to shareholding details it submitted to the Bombay Stock Exchange.

It now wants to consolidate its holding in the largest company in its stable, by taking the stake to the level of 44 per cent.

Sources close to the developments said the stake hike would be done shortly but declined to specify a time frame.

Tata Steel officials were not available for comments.

In the last one year, the promoters have raised the stake by almost 7 per cent through an issue of preferential shares.

Tata Steel had then said that there were many players in the industry. This created a trend towards consolidation, making the company vulnerable to predators.

It said the sole safeguard was to increase the stake of the founder family over a period of time.

Last years’ preferential issue followed the audacious takeover of Arcelor SA by L.N. Mittal.

Later, Tata Steel itself took the merger and acquisition route to buy Corus, the Anglo-Dutch steel giant which is many times its size.

The sources said the company could use both the creeping acquisition route — this is buying from the market — or make another preferential allotment.

Industry observers said the preference shares could be the chosen route as money would then flow into the company. “Tata Steel is building a number of new plants, entailing large investments. So the promoters may want money to go into the company’s coffers and not for buying shares from the open market,” they said.

The company, which was at the 56th spot before the Corus takeover, jumped to 6th after the acquisition, with capacity going up to 24 million tonnes (mt). It now wants to expand capacity to 40mt in the next 5 years.

Most of the additional capacity will come from new plants in Orissa, Chhattisgarh and Jharkhand. The company will also set up a plant in Vietnam.

Within promoters, Tata Sons, the main holding company of Tata Group, holds 27.63 per cent share, while Tata Motors and Tata Chemicals hold 4.29 per cent and 0.51 per cent, respectively.

The Tata family holding in the company has been low over the year, fuelling speculations of hostile takeovers.

At one point, Pilani Investments, the Birla family holding company, held 8 per cent which was more than the Tata Group stake.

However, the situation changed after 1996, when the Tatas doubled their holding in Tata Steel to about 14.8 per cent through an issue of warrants.

Creeping acquisitions from the market have seen the stake rise to about 26.79 per cent before the preferential allotment of 2006-7.

The observers said the urge for consolidation was a consequence of growth prospects of the steel industry in India and China. “As many companies eye these two markets, there is a need to consolidate.”

Such consolidation exercises are a recent trend among Indian companies who, earlier, had been comfortable with low promoters’ stakes.

For instance, four of India’s top companies — Reliance Industries, Hindalco, Bharti Airtel and also Tata Steel — have seen consolidations in promoters’ holdings.

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