Tata Steel to raise up to Rs 10,000 cr; may 'right-size' assets

Tata Steel will seek shareholders nod to raise as much as Rs 10,000 crore through securities to meet capital requirements.

New Delhi: Tata Steel will seek shareholders nod to raise as much as Rs 10,000 crore through securities to meet capital requirements.

It also indicated that currency movements and cheap Chinese imports are impacting the operations of its UK arm and the firm may undertake more "asset right-sizing" measures in the near future.

On fund raising, Tata Steel said in its annual report that it seeks to continuously optimise its borrowings by ensuring they are aligned in terms of quantum, risk, maturity and cost with its earnings profile.

Financial markets are very dynamic in nature and it is hard to predict when and which market may provide window of opportunity to the firm to raise cost effective capital that has better terms and can help lengthen the maturity profile, it added.

"To allow the company the flexibility to tap into these pools opportunistically, the company is seeking approval from the shareholders...To issue Securities...Not exceeding Rs 10,000 crore through Securities (convertible into equity or otherwise) in the international and domestic capital markets," it said.

Tata Steel's AGM is scheduled next month.

Tata Steel Chairman Cyrus Mistry in his address to the shareholders said the UK business of Tata Steel Europe is the most impacted by the surge of Chinese imports as its domestic demand continues to be weak.

"While management will take all actions to make the UK business more sustainable, continued challenges due to adverse currency movement of the Pound versus the US Dollar and the Euro as also the unrelenting Chinese imports into the UK may force the Company to undertake further asset right-sizing in the near future," he said in the annual report.

Tata Steel stock fell 0.11 percent to settle at Rs 284 apiece at the BSE.

Mistry said the global economy continues to be "fragile and uncertain" especially with regard to the impact of the Chinese slowdown and the eurozone crisis.

"The last twelve months saw the manifestation of several global macro risks that could have a long and deep impact on the world economy that is likely to influence the shape of the economic cycle in the future," he added.

The key amongst them was the slowdown in the Chinese economy, Mistry said, adding that this development had a deep impact on the commodity cycle, the commodity economies and currencies that depended on China's growth story.

China in the last decade built substantial steelmaking capacity to meet its manufacturing growth and consumption requirements. This resulted in China's share of global steel production doubling to 50 percent.

The global steel capacity utilisation continues to remain at around 75 percent, while the utilisation levels in China remained lower than global average and around 70 percent of the total global excess capacity resides in China, he added.

"This coupled with declining domestic steel consumption led to rise in steel exports from China. Chinese steel exports surged to an all-time high of over 100 million tonnes in fiscal 2015 creating a cascading effect on other steel producing nations," Mistry said.

Further, a sharp depreciation of currencies in Russia and Japan improved their competitive position and increased steel exports from these countries. Resultant steel trade dynamics, subdued demand and declining raw material prices have driven global steel prices lower and impacted profitability.

"All of the above have distorted the pricing structure of steel globally and adversely impacted the long term economic competitiveness of steel including in India, thereby impacting employment and prospects of new capital investment in the steel sector," he rued.

The Government of India aims to triple the steel capacity to 300 million tonnes by 2025, Mistry said.

"In order to ensure that such capacity is viable to set up and value creating for the stakeholders, it is important to ensure that the ease of doing business is enhanced and the Indian steel industry is not unfairly harmed by low priced subsidised imports from overseas," he added.

Globally, declining steel demand and increased production in China are expected to result in continued high export levels to Europe.

There are, however, some visible signs of recovery as European Central Bank's (ECB) quantitative easing and various regional measures boost the markets, even though countries like the UK have been impacted by currency volatility, he said.

On the firm's South-East-Asia operations, Mistry said there was 'significant pressure' from Chinese exports as evident from spread decline in the past year.

"Our operations intend to mitigate this risk by focusing on cost savings initiatives and downstream market strategy," he added.