Follow-on public issue to raise up to Rs3,700 crore for Jamshepur expansion hits market on Wednesday

Tata Steel has acquired nearly 75% of land required for its greenfield project at Kalinganagar in Orissa and it intends to start work soon, Hemant M Nerurkar, managing director, Tata Steel, told Moneylife.

"Right now, we have almost 75% of land in our possession for the greenfield project in Orissa and it is enough to start work on the first phase of the project. We will start construction work soon," Mr Nerurkar said.

Tata Steel has been struggling to set up a greenfield project in Orissa for the past few years. "Developments in our projects in Orissa had not gone up to our expectations. However, the brownfield project in Jamshedpur is going well," he pointed out.

The company has planned a follow-on public offer (FPO) to raise Rs3,500 crore to Rs3,700 crore, to enhance domestic production capacity at its Jamshedpur plant and repay debt. The rest of its will also be used for general corporate purposes. The FPO hits the market on 19th January.

The FPO comprises a net issue of 55,500,000 equity shares to the public and a reservation of 1,500,000 equity shares for subscription by eligible employees. The issue will close on 21st January. The price band has been fixed between Rs594 and Rs610 a share.
 
"We will use around Rs1,700 crore to Rs1,800 crore for expansion of existing works at the Jamshedpur steel plant, around Rs1,000 crore will be used to repay debt and the rest of it will be used for other investment purposes," said Koushik Chatterjee, chief financial officer. Tata Steel plans to add 3.2 million tonnes to its current production capacity of 6.8 million tonnes at the Jamshedpur plant by December 2012.
 
"The company could also invest some part of the proceeds for the Bengal coal project of Riversdale," Mr Chatterjee said. "After this offer (FPO), the promoter's share holding in the company will come down by around 2.4% to 30.8%."

The company has appointed seven banks to manage the issue-Kotak Mahindra Bank, Citi, Deutsche Bank AG, Royal Bank of Scotland Plc, SBI Capital Markets, Standard Chartered Bank Plc and HSBC Bank.

On the volatility in steel prices, Mr Nerurkar said, "Prices of steel will go up in line with rising prices of raw materials, mainly coking coal." He also said that prices of steel cannot be increased every time as it could distract demand.
 
Analysts feel that the company will not suffer a hit on account of rising coking coal prices in the international market as about 60% of its requirement is met from captive mines.
 
"We are not facing any kind of difficulties for securing raw materials supply. We have sufficient stock of coking coal and iron ore," Mr Nerurkar said. — Moneylife Digital Team