Tata Steel sells Tata Motors' shares for Rs 2,500 crore
Tata Steel has sold shares worth Rs 2,500 crore in group company Tata Motors in two separate transactions of Rs 1,250 crore each.
The country’s largest private sector steelmaker, which owned 5.54 per cent stake in Tata Motors at the end of June 2015, sold 1.33 per cent shares in a block deal at an average price of Rs 324.5 per share to raise Rs 1,250 crore, according to the term sheet, a copy of which is with ET.
"The company, as part of its portfolio restructuring, on September 18, 2015, sold 3.85 crore shares of Tata Motors to institutional investors over the stock exchange for a total consideration of Rs 1,250.69 crore," Tata Steel said in a filing with the BSE.
Tata Steel also sold another 3.78 crore shares in an off-market transaction to Tata Sons at Rs330 per share, which at the end of the June quarter held 25.67 per cent in Tata Motors. Post this, Tata Steel continues to hold 2.88 per cent in Tata Motors. According to analysts, Tata Steel is struggling to generate cash from its operations to service debt.
At the end of 2014-15, Tata Steel had debt of about Rs 69,000 crore and operating profit was a negative Rs 3,258 crore. Its debt to equity at the end of 2014-15 was 2.5. Debt to equity ratio is used to measure a company’s leverage and anything less than 3 is fine unless the company’s interest coverage ratio (operating profit divided by interest expense) is less than 2. Interest coverage ratio is used to measure the company’s ability to pay interest. Tata Steel’s interest coverage ratio for the last fiscal was negative.
Last month, Tata Steel sold 2.18 per cent of its stake in another Tata group firm, Titan, to Tata Sons for over Rs 637 crore.
"It is a good thing that Tata Steel is liquidating its holdings. By doing this, they will be able to keep their leverage under control and also this cash can be used for interest payment, at least till steel demand revives," an analyst with a foreign brokerage said.
At the end of 2014-15, Tata Steel held shares of 13 companies, of which 11 were group companies and the remaining were of CRISIL and HDFC. The total value of its holding in CRISIL and HDFC is close to Rs 8,000 crore.