Directors' Report

Finance

The combination of Tata Steel and Corus will give the Company access to highly developed and competitive markets of Europe, a strong product portfolio and state-of-the-art technology in manufacturing.

In the last few years, the Company has been steadily consolidating its financial position. No major borrowings were undertaken and the entire funds for capital expenditure were met from internal generation. Surplus cash reserves were temporarily invested in money market mutual funds to facilitate liquidity.

The Company was, therefore, in a strong position to leverage its balance sheet to meet the substantial funds required for the acquisition of Corus. The Company proposes to infuse USD 4.1 billion as equity to part finance the transaction. The equity will comprise of USD 700 million from internal generation, USD 500 million of external commercial borrowings, USD 640 million from the preferential issues of equity shares to Tata Sons Ltd. in 2006-07 and 2007-08, USD 862 million from a rights issue of equity shares to the shareholders, USD 1000 million from a rights issue of convertible preference shares and about USD 500 million from a foreign issue of equity-related instrument.

Tata Steel UK Limited, a wholly-owned indirect investment subsidiary of the Company, has contracted a USD 6.14 billion long-term debt from a consortium of banks, with a non-recourse provision as far as Tata Steel is concerned. The balance amount of USD 2.66 billion is proposed to be raised through a long tenor quasi-equity or debt capital market instrument.

Considering the large amount of funds required, adequate care has been taken to ensure that the additional borrowings are efficiently priced and serviced without overly stretching the Company’s balance sheet. The financing structure also allows deleveraging of Corus without any pre-payment costs and provide flexibility to take advantage of better terms in the future.

A secured loan of USD 400 million was availed from IFC (Washington) to part finance the domestic expansion projects. During the year, total loans increased to Rs. 9,645 crores from Rs. 2,516 crores in the previous year, due to increase in the foreign currency loans of Rs. 7,225 crores (USD 1.65 billion) for funding the acquisition of Corus. The proportion of foreign currency loans to the total loans was 76% in the year under review as compared to 11% in the previous year.

Raising of Finance Through Preferential Issue of Shares and Warrants to Tata Sons Ltd.

At the Annual General Meeting of the Company held on 5th July, 2006, the shareholders had approved the proposal to raise additional long term funds, including through preferential issue of securities to the main promoter, Tata Sons Limited (TSL). In terms of SEBI (DIP) Guidelines 2000, the Board, at its meeting held on the same day, approved the preferential issue of 2,70,00,000 Ordinary Shares of Rs. 10 each, at a premium of Rs. 506 and 2,85,00,000 warrants to TSL, where each warrant entitled TSL to subscribe to one Ordinary Share of the Company against payment in cash. The option to convert the Warrants into Ordinary Shares was exercisable on or after 1st April, 2007.

Pursuant to the above, 2,70,00,000 Ordinary Shares of Rs. 10 each were allotted to TSL on 19th July, 2006, at a premium of Rs. 506 per share aggregating to Rs. 1393.20 crores. On 16th April, 2007, TSL exercised its option to convert 2,85,00,000 warrants into Ordinary Shares at a price of Rs. 484.27 per share. Accordingly, 2,85,00,000 Ordinary Shares of Rs. 10 each were allotted to TSL on 17th April, 2007, at a premium of Rs. 474.27 per share aggregating to Rs. 1,380.17 crores.

After the preferential issue, the paid-up share capital of the Company stands at Rs. 608.97 crores, comprising 608,972,856 Ordinary Shares of Rs. 10 each.

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