Tata Sons' $1.5 bn overseas loan plan to push up debt by 50%

Tata Sons’ plan to raise $1.5 billion overseas loan for the first time since 2007 is likely to push up its debt by 50 per cent, but the company’s debt equity ratio will remain below one, thereby giving the company enough headroom to raise funds, according to analysts.

Besides, the share buyback announced by Tata Consultancy Services on Tuesday evening will come in handy for the second time in as many years for Tata Sons, to raise funds by tendering part of its 71.92 per cent stake in the software exporter.

Tata Sons stake in TCS is worth Rs  5 trillion as on Wednesday.

TCS is also the biggest contributor to dividend income among all Tata Group firms, which also helps the holding company take more risks.

The $1.5 billion loan raised by Tata Sons will be used for investments in infrastructure projects and to increase the debt equity ratio to 0.8 from 0.5, according to the analysts quoted above.

The net debt of the company had increased to Rs 219.9 billion as on February 13, 2018, and it had cash and cash equivalents of around Rs 61.3 billion. During 2017-18, Tata Sons received Rs 102.78 billion from buyback of shares announced by TCS.

This  resulted  in  an  increase  in cash  accruals  during  the  year,  despite  the holding company making provisions of Rs 119 billion for losses in Tata Teleservices. Tata Sons has not come out with the full financials for 2017-18.

When contacted, a Tata Sons spokesperson declined to comment.

Recently, a Tata Sons subsidiary won the mandate to construct one of the two phases of the Mumbai to Navi Mumbai trans-harbour link.

Besides, Tata Sons is expected to invest substantial amounts over the next few quarters to reduce the debt of Tata Teleservices and this would, in turn, increase the Tata Group holding company’s debt in the near term, thereby leading to an increase in the ratio of debt to market value of investments.

However, it is unlikely to breach the 15 per cent mark and is expected to correct to around 10 per cent over the medium term, primarily on account of a reduction in debt levels.

Apart from paying off Tata Teleservices’ debt, Tata Sons is also buying back shares from other listed Tata Group companies. 

According to group insiders, Tata Sons will need money to repay the debt of Tata Teleservices before the latter is merged with Bharti Airtel. Tata Teleservices will retain the enterprise business.

Tata Teleservices has repaid Rs 170 billion of loans of Tata Teleservices to a consortium of bankers led by State Bank of India in January. It still has to repay the remaining Rs 60 billion before concluding the deal with Bharti.

Tata Sons also has to fund Tata Steels’ purchase of Bhushan Steel.

Tata Steel has offered Rs 352 billion to take over Bhushan Steel.

It is also the highest bidder for Bhushan Power and may also takeover Usha Martin’s steel business for another Rs 60 billion. Tata Sons holds 31.64 per cent in Tata Steel.


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