Mumbai, February 23: Hardening of interest rates in the domestic market has forced Tata Iron & Steel Co, the Tata group flagship, to defer its plans to raise around Rs 400 crore through non-convertible debentures.The issue would have been the largest private placement of debt in the domestic market. Company officials said, "We are not interested in raising funds at such high rates and would prefer to wait till the elections are over to see if the rates head southwards." Tisco was initially looking the raise the amount in January.
It is learnt that company officials are in touch with financial institutions for privately placing the debentures at a future date. Tisco is counting on a fall in interest rates after the slack-season credit policy to be announced in April. The situation has placed companies planning to raise medium-term funds in a difficult position. On the one hand, interest rates have shot up after the Reserve Bank increased the bank rate by two percentage points in January.
On the otherhand, the forward premium on the dollar is in the 13-14 per cent range, making overseas fund-raising route too expensive. Along with the going rate of between 1.5 and 2.5 percentage points above Libor, the total cost would be more than 20 per cent (depending on their respective ratings). Finance executives with top-rated corporates said, as a result, companies would have to hold back their investment plans. "Unless rates come down, there will not be any revival in investments," sources said.
Tisco was planning to raise around Rs 400 crore to part-fund its 1.2 million tonnes cold-rolling mill (CRM) project at Jamshedpur to be commissioned in September 2000.
During the preceding period of low interest rates, the steel major cashed in (as did AV Birla group flagship Grasim Industries) and issued debentures at 12.25 per cent.
The company has a Rs 2,000-crore capital expenditure for the next two years, about 60 per cent of which will be funded out of internal accruals, while the rest will be sourced fromtwo debt issues. A majority of this amount will be required to fund the CRM. Tata Steel has decided to keep the estimated cost of the project under wraps.
It had initially planned two CRMs in Jamshedpur and Gopalpur respectively, where the company proposes to set up a 10 million tonnes integrated steel unit. While implementation of the mill at Gopalpur has been deferred, the one at Jamshedpur has been brought forward to add value to the hot-rolled coils from the upcoming hot strip mill in Jamshedpur.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
