Tata Chemicals (TCL) has mobilised around INR 4.5 billion by selling its investments in group companies Tata Consultancy and Tata Investment in order to part-fund its acquisition of the soda ash busin…
Tata Chemicals (TCL) has mobilised around INR 4.5 billion by selling its investments in group companies Tata Consultancy and Tata Investment in order to part-fund its acquisition of the soda ash business of the US-based General Industrial Products (GIP) for USD 1 billion (INR 40 billion). The balance money for the deal, which makes TCL the world“s second-largest soda ash maker with a combined capacity of 5.5 million tonne a year and 14% share of the global market, is being found through debt and internal resources. It is known that TCL plans to raise another INR 700 million by selling more equity in these two firms. It will also mobilise around INR 6.8 billion from its cash reserves. The balance of INR 28 billion will be debt, for which the company is in talks with ABN Amro, HSBC, Standard Chartered and Calyon Bank. TCL sold nearly 1.3 million shares of TCS between 21 and 27 February 2008 and 5.2 million shares in Tata Investment on 13 February 2008. While TCL sold shares of TCS on the open market, it off-loaded shares of Tata Investment to Tata Sons, the main investment firm of the group. Post-divestment, TCL holds 990,544 shares in TCS and 297,400 shares in Tata Investment. Industry source said raising funds through debt instruments may not be easy for TCL, given the tight liquidity conditions in the global money markets. However, they feel the company will manage to do so. “TCL may have to pay a higher interest for the debt”, said one unnamed banker. “The [General Industrial Products] acquisition will help TCL in the long term. TCL will get access to the company“s cheap natural resources, which provides cost advantage over synthetic raw materials as well as an opportunity to hedge against the commodity cycle”, said the banker. TCL will also have access to markets like North America, Latin America and the Far East. The US firm produces natural soda ash, which uses less energy, capital and raw materials than synthetic soda. It has facilities in Wyoming in the US and 100 years of extractable trona ore. It is the second major overseas purchase by TCL; the first was the acquisition of 63.5% of the UK soda ash producer Brunner Mond two years ago. The INR 60 billion TCL produces soda ash, cement, sodium bicarbonate and cooking soda, and is India“s biggest producer of salt, with a net profit of nearly INR 5 billion in FY 2007.