Tata Steel may come up with a $2 billion bond offer to part-finance the acquisition of Anglo-Dutch Corus Group if it manages to clinch the deal.
Sources close to the development said the country's second-largest steel maker would have to keep a war chest of $8-9 billion ready to fund the Corus takeover. British laws demand an open offer to all Corus shareholders if the Tata group's holding in the company goes beyond 30 per cent.
They added that Tata Steel had also lined up a loan of up to $6.5 billion from Standard Chartered Plc, ABN Amro and Deutsche Bank. Tata Steel will refinance the loan later through a combination of instruments, including a bond issue of $2 billion. Tata Sons, the group's holding company, will chip in with the remaining portion.
The fund-raising programme might include the launch of a special purpose vehicle to conclude the deal -- the same route taken by Tata Tea when it acquired Tetley, sources said.
They added that Tata Steel had set the Corus ball rolling in July, when Tata group Chairman Ratan Tata met Corus Chairman Jim Leng in Dubai.
The sources said the Tata bid might be at a premium to the ruling Corus share price. "Corus is not just a steel maker. It's a process owner as well. It demands premium," said an analyst with a foreign brokerage.
When contacted on the fund raising as well as Tata's meeting with the Corus chief, the Tata Steel spokesperson said the company did not wish to comment on speculation.
Earlier in the day, Tata Steel informed the domestic and London stock exchanges that it was considering acquisitions, including Corus. "There can be no certainty that an approach will be made and, if made, that it will result in an offer for Corus," it added.
However, Tata Steel's clarification to the stock exchanges sent the Corus stock up by 18 per cent. Share prices of Corus were up 15.2 per cent at 469-1/2 pence by 1205 GMT, topping the FTSE-100 index.
Tatas plan India's biggest acquisition
The stock hit a six-and-a-half year high of 482-1/4p.
Shares in other European steel companies, including Salzgitter AG and ThyssenKrupp AG, also rose. Tata Steel closed 2.68 per cent higher on Thursday at Rs 537.35 from Wdnesday's close of Rs 523.35 in a strong Mumbai market.
Tata Sons has already committed Rs 1,400 crore or Rs 14 billion (nearly $310 million) in Tata Steel through subscription of preferential shares. Chairman Ratan Tata had announced at the last annual general meeting that the company would spend Rs 70,000 crore in (Rs 700 billion) the next 10 years to have a 30 million tonne capacity from the existing 5 million tonnes a year.
If Tata Steel manages to wrest control of Corus, it will be the second most valuable takeover bid after Mittal Steel's $31 billion (16.5 billion pounds) acquisition of rival Arcelor this year.
It will propel Tata Steel to the sixth slot from 56th in global rankings, and will underscore its growing appetite to cut costs by merging with rivals.
Tata Steel has expanded in South East Asia by acquiring Thailand's 1.2 million tonne Millennium Steel PCL and Singapore's 2 million tonne NatSteel.
Do you want to discuss stock tips? Do you know a hot one? Join the Stock Market Investments Discussion Group
