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Mumbai, Oct. 8: Tata Steel is looking to raise $1 billion through a qualified institutional placement (QIP) of common stock and shares with differential voting rights (DVR) to pare its Rs 53,307-crore debt at the end of March 2010.
The QIP issue comes close on the heels of a similar flotation by its twin — Tata Motors.
The buzz in the market is that the steel major will price the ordinary share component at Rs 650 apiece, while the DVRs can come at a discount of 25-30 per cent to the ordinary shares. This, however, could not be confirmed from the company.
Late last month, Tata Steel had announced that it had executed agreements to replace debt that was used to finance the Corus acquisition in 2007. It had obtained £3.5 billion that comprised a term loan and a revolving credit facility for the refinancing of its European operations.
The steel behemoth’s move to go in for a QIP issue should be seen in the context of the huge response to a similar issue by Tata Motors.
Strong investor appetite for the automobile company’s issue had resulted in Tata Motors raising its issue size to $750 million from $525 million.
In 2008, Tata Motors became the first Indian company to come out with a DVR issue. It was followed by Pantaloon Retail and Gujarat NRE Coke, which announced a bonus issue with differential voting rights. Investors subscribing to a DVR issue are entitled to higher dividends than the ordinary shares but they have limited voting rights. These DVRs are also traded on the stock exchanges.
Initial interest in the DVR issues was tepid but investor interest in these shares has picked up over the past few months.
In a recent report, Vineet Hetamasaria of PINC Research said as more companies start making DVR issues, awareness about the instrument would spread and the discount on DVRs would be determined by market dynamics.
However, news of the QIP led to selling pressure at the Tata Steel counter today on fears of equity dilution. On the BSE, the share closed nearly 3.48 per cent lower at Rs 626.95.