This is the first tranche from the $2 billion Tata Sons is planning raise by tapping the foreign loan market.

Tata Sons to raise 500 mn via offshore borrowings to fund groups expansion plansImage for representation
Money Corporate Monday, July 15, 2019 - 15:52

Tata Sons, the holding company of the Tata Group is reportedly planning to raise funds through external borrowings to meet various requirements. Though the overall amount being sourced in expected to be of the order of $2.5 billion, the first tranche of $500 million may be already in advanced stages of being approved by the lenders, according to an Economic Times report. A large consortium comprising premier financial institutions like Standard Chartered Bank, DBS Bank, MUFG, Sumitomo Mitsui Banking Corporation (SMBC) and Scotiabank is said to be involved in syndicating these borrowings.

Tata Sons being a private entity has blocked its avenues to raise borrowings from domestic lenders. The company had borrowed in the domestic financial market in the past. The ET report suggests that Tata Sons may be able to raise these funds at an interest rates which would be around 115 basis points about the London Inter-bank Offered Rate (LIBOR). The LIBOR rates vary with the currency in which the amount is borrowed and the term in terms of months or years. The last quoted LIBOR rate for a USD loan for a 12-month term was a fraction above 2.23%. With large amounts being involved, even a fraction of the rate can have an impact in absolute terms. The external borrowings by Tata Sons are expected to mature after three to four years.

The funds raised through these external sources would be primarily deployed in helping group companies like Tata Steel and Tata Motors meet their financial obligations as well as to refinance the debts in the books of Tata Sons.

There is no official confirmation on this development from Tata Sons but the reports indicate the overall sums to be borrowed may even reach, $2.5 billion, something the group has not attempted before.

One of the outcomes of the policy limiting domestic borrowings by private companies has been that Tata Sons has had to buy back non-convertible debentures (NCDs) from LIC of India. The insurance regulatory body IRDA directed LIC to offload its investment in Tata Sons.

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