Tata Steel FPO opens; to review add'l fund raising later

The company aims to raise Rs 3,385.8-3,477 crore through the issue, which will close on January 21. "The board will review additional fund raising later," said, the group’s chief financial officer Koushik Chatterjee.

On the rational behind choosing FPO as an instrument to raise funds, he said, "We did look at other routes as well but chose FPO because of the large number of shareholders to participate. Moreover, FPO pricing is far more flexible than that of issuing shares via differential voting rights (DVR) and global depository receipt (GDR)."

Even before the issue opened for subscription, the anchor book (a part of QIBs) had received overwhelming response from anchor investors on Tuesday. "The anchor book has been subscribed over eight times," confirmed Chatterjee.

To this, the two lead managers to the issue A Rajagopal of Standard Chartered Bank and Falguni Nayar managing director and chief executive officer of Kotak Investment Banking, said the anchor book was allotted to 33 investors and was subscribed by Indian mutual funds, insurance companies and foreign institutional investors. "Investor interest in metals especially Tata Steel is good," Nayar pointed out.

"There is no conflict between Tata Steel and SAIL FPOs for bankers and nor is a divergence in timing," the two added.

Below is a verbatim transcript of their exclusive interview with CNBC-TV18’s Udayan Mukherjee and Mitali Mukherjee. For the complete interview, watch the accompanying videos.

Q: You received the nod to raise up to Rs 7,000 crore but you are going with half of that. Are you keeping half for later or is it all you want to raise?

Chatterjee: Generally, when we go in for shareholder approval, we talk about a larger number because you don’t go to shareholders every now and then. So it is a larger approval that we have. At this point of time we thought USD 750 million is the right number to go through given our requirement in the next few months, as well as from the market perspective. The Tata Steel Board will review its requirement at a later point in time. At this point in time, we thought this is the number which is most appropriate.

Q: There was a lot of talk about the choice of instrument because I believe you explored the possibility of a DVR, a GDR and finally settled for a vanilla FPO. Can you just explain the choice of the instrument?

Chatterjee: In November, when we first announced that we would be raising equity what we said is the quantum method timing of the raising will be determined at a point in time. We did look at several other options as well. But given the fact that Tata Steel had not done an FPO for a very long period of time, it has been listed almost now for a century, the board was more comfortable in opening up the issue to a broader base of shareholders, even though we have almost 9,50,000 shareholders. It’s always good to give a chance to a broad based shareholder audience. That was one of the key reasons why we did an FPO.

As far as the DVR or QIP is concerned, clearly, the floor pricing issue is a restriction in the context of a volatile market. The FPO pricing is much more flexible. Finally, the Sebi’s fast track regulations do allow us to do it in a fairly accelerated point in time, rather than waiting for a very long time as used to be the case earlier.

Q: A two part question a) will you not require any fund raising for the rest of this calendar year and b) will you look at pricing the follow-on differently from what you allotted to the anchors - it won’t be Rs 610 to a share, would you look at a lower price?

Chatterjee: Given the fact that yesterday, we had the anchor interest open and it came in substantially higher than our requirement. The interest was more than eight times the requirement and all of it came in at about Rs 610. We would certainly look at what happens in the next three days and then take a pricing decision. It is too early but there is a very strong interest at this point in time at that level.

Q: You have been involved with a lot of deals from the metal space. Is appetite very high right now for some of these offers from metal companies in our market?

Nayar: Definitely. We do feel that the investor interest is good in the metals area. Especially, for Tata Steel, we saw very good investor appetite as is evident from the anchor book itself is allotted to about 33 investors, indicative of a very wide and strong appetite because Indian metal companies are more integrated. For Tata Steel, one of their biggest strength is that they have a backward integration all the way up to the raw material chain.

Particularly, for Tata Steel, there is improving earnings on a consolidated basis. Their standalone India operation has always been strong. There is future growth and that is what we are seeing that there is fair amount of excitement in the Indian metal sector from international investors. It is one of our top sector recommendations.

Q: There has been some talk from New Delhi that the government is unhappy that many investment bankers including you, are doing both Tata Steel and the SAIL FPO and apparently its been called unethical by the government. What is your response to that?

Nayar: It is an international practice as well as an Indian practice where banks do get involved in multiple deals in a sector. There is clearly no conflict at all as far as we are concerned. We are in the process of replying to their letter.

Q: Is it causing a bit of a heartburn out there that bankers are doing issues for two large companies in the same sector one after the other?

Rajagopal: I would broadly agree with what Falguni Nayar said. It is not unheard of or not unseen where bankers are involved in deals from the same sector. I don’t think as a banker, I can say that it causes any heartburn. As you can see, there is no conflict in terms of timing either. Clearly, Tata Steel has gone ahead and is doing a very successful issue and SAIL is not in the market right now, just as an example.