LPC-Tata Steel facing loan refinancing test
By Prakash Chakravarti and Tessa Walsh
LONDON (Reuters) - Tata Steel Ltd could find it difficult to refinance a $425 million (300 million pounds) loan for its Canadian unit after announcing the sale of its UK business and receiving a weak response to a US$1.5bn refinancing for its Singaporean unit, bankers said on Tuesday.
India's Tata Steel, Britain's largest steelmaker, announced plans to put its UK business up for sale on March 30 to stem heavy losses resulting from cheap Chinese imports, putting thousands of jobs at risk.
The British government opened talks with potential buyers for Tata Steel's UK operations on Tuesday as it stepped up its battle to find a buyer for the loss-making business.
Although Tata Steel pushed lenders to join its US$1.5bn refinancing, only two banks joined the deal before it closed in March with total commitments of US$231.7m, which left the lead banks with more exposure than planned.
Investors are also poring over Tata Steel's loans in the secondary market to see if any banks are willing to sell, but no sales have taken place yet as bankers try to unravel the complex structure of the company's loans, loan traders said.
"There's interest in the loans and a lot of people sniffing around to see if there's any sellers, but people are still investigating the deals," a senior secondary loan trader said.
Tata Steel did not immediately comment.
EXISTING DEALS
Tata Steel and Corus Group, the Dutch steelmaker that Tata bought in 2007, refinanced their debt in December 2014 with two loans - a €1.8bn facility and a US$3.095bn-equivalent multi-tranche loan.
The €1.8bn seven-year deal was for Tata Steel Netherlands and was underwritten by State Bank of India and sold to other Indian banks.
The US$3.095bn loan included a €370m five-year term loan and a £700m six-year revolving credit, also for Tata Steel Netherlands, and the US$1.5bn loan for Tata Steel Global Holdings Pte Ltd (Singapore).
The US$1.5bn refinancing was launched to general syndication in January by the deal's 16-strong group of arranging banks.
ANZ, Axis Bank, Bank of America Merrill Lynch, Bank of Tokyo-Mitsubishi UFJ, BNP Paribas, Citigroup, Credit Agricole, Deutsche Bank, Emirates NBD, First Gulf Bank, HDFC Bank, ICICI Bank, National Bank of Abu Dhabi, SG Asia, Standard Chartered and Sumitomo Mitsui Banking Corp pre-funded the loan on December 14.
Only Mizuho Bank joined in senior syndication and Burgan Bank joined in general syndication, which left the lead banks overexposed.
The deal consisted of two US$750m tranches of five and six years and margins of 215bp over Libor and 250bp respectively.
It also gives Tata Steel relief from a covenant which says that debt to earnings must not be more than 3.99 times and will now be tested in 2020.
CANADIAN REFI
The weak response for the $1.5 billion refinancing in Asia does not bode well for Tata Steel's attempts to complete the US$425m refinancing for its Canadian joint venture.
Tata Steel is trying to refinance a US$450m non-recourse loan for Tata Steel Minerals Canada Ltd, a joint venture between TS Global Minerals Holdings (94%) and Toronto-listed New Millennium Iron Corp (NML), which was established in 2010.
Tata Steel may have to provide a letter of support for lenders as the Canadian unit is not operational during the winter months, bankers said.
Tata Steel and NML did a joint feasibility study for the Taconite Project, which comprises the LabMag and KeMag deposits that form part of the Millennium Iron range in Northern Canada, in March 2011.
The two companies sought extra investment after 2014's feasibility study and technical reports showed that capital costs would be high and financing could be challenging.
Tata Steel and NML intended to reach a definitive agreement in the first quarter of 2016 but had to abandon plans to raise a bigger US$600m loan in favour of the US$425m refinancing after an unenthusiastic response from lenders.
(Additional reporting by Alasdair Reilly in London. Editing by Christopher Mangham)
