Tata Steel may pay $1 billion offshore loans early | Economic Times

Tata Steel is considering prepaying up to $1 billion (Rs 7,315 crore) of foreign loans, taking advantage of a commodity price super cycle that has boosted the company’s cash position, three people with knowledge of the matter told ET.The nation’s biggest and oldest steelmaker has already cut its debt by more than $3 billion in the past three years. Strong global demand and high prices for steel since last year have increased the company’s cash flow, allowing Tata Steel to continue with debt reduction as it seeks to lower interest cost and increase future profitability.‘Can Raise Debt at Lower Cost’“We are in the process of taking a prudent decision on debt reduction,” said an executive in the know of the matter who did not wish to be named. He said the amount would be decided at the board meeting to consider June quarter results.Tata Steel did not respond to an email seeking comment till Sunday press time.An investment banker, who has worked with Tata Steel on several assignments, said if the company needed funds for expansion projects, it could raise debt at a lower cost as interest rates had come down in India and globally. “Prepaying high-cost debt is the company’s top priority, although it may avail of new loans if need be, to support its newly acquired assets,” said the banker.Interest rates on some of Tata Steel’s loans are higher than the market rates now. It had taken a five-year, $1.75-billion loan about a year and half ago, when the three-month London Interbank Offered Rate was yielding around 1.92%. On Friday, the benchmark rate was 0.13%.Tata Steel had a total debt of Rs 88,501 crore as on March 31, 2021, compared with Rs 1,16,328 crore a year earlier.In a recent interaction with ET, managing director TV Narendran said the company was committed to its goal of reducing debt by at least a billion dollars a year.Higher RatingsLast month, ratings company Fitch upgraded Tata Steel’s creditworthiness to BB, still in the junk category but a notch higher than its previous rating. The outlook is stable.In its May 19 note, Fitch cited “significant improvement” in Tata Steel’s financial profile for the upgrade — driven by a jump in margins following a faster-than-expected recovery in the global steel market from the impact of the pandemic.Last week, steel prices hit a record high of Rs 70,000-71,000 a tonne for the benchmark hot-rolled coil, and Rs 83,000-84,000 for cold roll coil.Some analysts expect the price trajectory of steel to move down now. “We expect global prices to decline... This is likely to result in Indian prices coming off as well, tracking import parity,” Amit Dixit, research analyst, Edelweiss, wrote in a report on Saturday.The analyst sees a 15% upside potential in Tata Steel’s stock returns due to its debt reduction potential, high steel prices and improved performance of its European unit.