The loan will be $375m, split into a $165m five year and a $210m six year , said a source, adding that those details could still change. The company was initially seeking $600m, including a portion for capital expenditure, but had to settle for a lower amount for refinancing after it failed to gather enough support.
All-in pricing was not disclosed but the margins on both the tranches are expected to be within 275bp-325bp over Libor. Tata Steel’s Singapore headquartered company Natsteel will borrow the money but it will be used to refinance debt raised by Tata Steel Canada.
The deal will be backed by a letter of comfort from parent Tata Steel and a guarantee by subsidiary Tata Steel Global Holdings.
The Indian company had been in talks with several banks for the loan, including Axis Bank, Export-Import Bank of India, HDFC Bank, ICICI Bank, Standard Chartered and State Bank of India, but the final group is yet to be firmed up as banks are still processing credit approvals. Conversations took place separately with each lender rather than the banks coming together as a syndicate and deciding on a common price, said the source.
GlobalCapital Asia reported in March that the company is likely to have to cough up substantially more for its latest borrowing than it did for a $1.5bn facility signed earlier this year.
Three credit rating downgrades this year and reservations around the quality of the underlying asset, Tata Steel Canada, meant banks demanded a higher return for the risk than when terms for the past facility were firmed up.
Fitch downgraded Tata Steel to BB from BB+ in April, citing lower profitability and higher leverage. Meanwhile, Moody’s cut Tata Steel’s rating to Ba3 from Ba1 in February with a negative outlook, while Standard & Poor’s downgraded Tata to BB- in January.
“With no respite expected from the downward pressure on international steel prices, we anticipate the company’s leverage and coverage metrics to remain weakly positioned for the next 12-18 months,” said Moody’s vice-president Kaustubh Chaubal in a report in February.
The old borrowing was split equally into two tranches, including a $750m tranche ‘A’ having a door-to-door life of five years and a six year portion. The former paid a margin of 215bp and the latter paid 250bp.
There are no plans for syndication as the loan is offering a “decent” return and banks, flush with liquidity, are less keen to sell well-priced assets amid intense competition, said the source.