Calcutta, March 7: Tata Tea has swapped the high-cost £ 171-million debt it raised to buy Tetley with a loan bigger in size, but one that will cost £ 6 million less to service every year.
The recast will bring down the average interest to 6.7 per cent from 10.22 per cent, Peter Unsworth, finance director of Tetley Group and Anil P Goel, vice-president of Tata Tea, told a joint press conference today.
The amount paid off comprised £ 114 million in senior debt, £ 49 million in mezzanine debt and £ 8 million in a secured loan-stock debt. The interest cost on the loan raised by Tata Tea (GB) — a special purpose vehicle floated to buy out Tetley — was 10.22 per cent.
The fresh debt, which RaboBank International and Royal Bank of Scotland helped to mobilise, is £ 3 million more at £ 174 million. But it has been arranged in a way that helps the Tatas save £ 6 million annually, Goel said.
Giving the details of the new structure, they said there are three tranches with an average interest of 6.7 per cent. Tranche A is valued at £ 90 million and has to be serviced twice a year over seven years; then, there are two tranches of £ 42 million each, on which there is bullet repayment spread over seven, eight and nine years.
The loan shuffle, Goel said, was one in a series of steps to enable Tata Tea (GB) prune debt. As a result, its debt-equity ratio has fallen to 1.7:1 from 3:1 immediately after leveraged buyout of Tetley in March 2000.
The management expects the leveraged debt structure to be wound down to the point where the company can switch to a traditional corporate debt soon. The financial initiatives will help Tetley Group’s cash flow and help launch its brand in emerging markets, including India, Bangladesh, CIS and West Asia.