Tata still hungry for more acquisitons?

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Tata Steel 's financial blueprint to buy Corus may seem like any other. But when you dig deeper, it gives us a glimpse into Tata's future acquisition plans. CNBC-TV18 gives the details.

 

After acquiring Singapore's Natsteel in 2004 and Thailand's Millennium Steel last  year, and its move for Corus now, the Tata bid is designed to leave it room for even more.

 

Managing Director, ABN-AMRO, Jitesh Gadhia says, "The structure of this transaction will be a newly incorporated subsidiary of Tata Steel in UK called Tata Steel UK Ltd, which will receive in total USD 10 billion of funding. USD 3.5 billion will come through Tata Steel's balance sheet and the balance will be raised through the European markets through non-recourse finance."

 

With its investment grade credit rating, Tata could have borrowed the money far cheaper directly than through the special purpose vehicle it created - but it could have saved its direct borrowing capacity for more to come.

 

Suvojoy Sengupta, VP of Booz Allen Hamilton, a Global Management Consultancy says, "It is perceived that the reason for doing this is that Tata retains the flexibility for making further acquisitions. This is not a one-off transaction, but part of a much broader vision and strategy of taking Tata Steel global and making it a significant player in the global market.

 

Tata has taken an expensive route, and according to market estimates, it will pay an extra USD 40 million to 50 million a year to service this debt than if it had borrowed money from the market directly.

 

"The trade-off they have made for that additional flexibility is the increased cost of borrowing that they will have to pay, which they will have to take out from cash flows from Corus," explains Sengupta.

 

With Tata keeping it's options open, at a price, and at some risk, for yet more acquisitions, watch the space at Corus, and others.