Tata Steel may opt for a rights issue to raise funds to finance its $13.13 billion purchase of the Corus group. The option of a global depository issue is not finding much favour as it would dilute promoters' equity. A rights issue, however, would not impact the promoters' holding.

What is more, the promoters can actually increase their stake by subscribing to the un-subscribed portion of other shareholders.

• The Tata-Corus Saga

The promoter companies hold 30 per cent in Tata Steel and are raising the holding by subscribing to preferential shares, a move that is perceived to be a shield against hostile takeover attempts.

When contacted, a Tata Steel spokesperson said: "It's too premature to talk on it. The financing of Corus buy has yet to be finalised and declared."

However, bankers close to the development were confident that the rights issue may be the option for the company. It could be in the range of $1-1.5 billion (Rs 4,500 - 6,750 crore) and hit the market next year. It will be the third rights issue of Tata Steel in the last 22 years. The company issued 1:3 rights offer in 1988 and 2:5 offer in 1993.

Sources said Tata Steel UK, Tata Steel's wholly owned subsidiary through which the acquisition was routed, would raise nearly $9 billion through a mix of senior bank debts and high-yield debts. Termed as leveraged buyout in the investment banking parlance, this debt will be serviced from the future cash flow of Corus.

Tata Steel and Tata Sons have committed to bring in $4.1 billion as their contribution towards the special purpose vehicle Tata Steel UK. Of this, nearly $1.3 billion will be funded from Tata Steel's cash reserves. Also, Tata Sons will provide funds through conversion of warrants. The remainder would be raised through debts.

"Bombay House, headquarters of the Tata Group, wants to undertake some form of share issue to reduce leveraging of the balance sheet of Tata Steel. The top honchos of the group are examining the advantage of launching a rights issue vis-�-vis a GDR. The decision will shortly be taken, a banker familiar with the matter said.

Tata Steel, at the annual general meeting in July 2006, had passed an enabling resolution to Rs 6,500 crore (Rs 65 billion).

As a part of the fund raising, the promoters had infused Rs 1,393 crore (Rs 13.93 billion) through subscription of preferential shares. They had also subscribed to 2.85 crore (28.5 million) warrants which be converted into equity shares after April 1, 2007.