The Tata Group is not taking any chances after Lakshmi Mittal's takeover of Arcelor, and his statement that his company will now look at acquisitions in India and China.
Tata Group chairman Ratan Tata told shareholders at the company's 99th annual general meeting that Tata Sons would raise its stake in Tata Steel by 10 per cent to ward off possible hostile takeover bids. The hike in stake would be done in two tranches through a preferential issue.
"The steel industry was highly fragmented and considerably vulnerable, and the only safeguard was to increase our stake over time," Tata said.
The group would raise around Rs 6,500 crore (RS 65 billion), and Tata sons would put in 10 per cent (of it). "This fund is necessary for expansion in Jamshedpur, acquisitions at the right time, and also to meet the requirements of three greenfield projects in Orissa, Chhattisgarh and Jharkhand," he said.
Tata Sons may raise its stake in Tata Steel by 5 per cent this year. The Securities and Exchange Board of India guidelines for preferential allotment/creeping acquisitions limit the quantum of acquisition at 5 per cent annually. On March 31, Tata Sons held 20.04 per cent in Tata Steel.
The total promoters' holding, including that of Tata Sons, was to the tune of 26.81 per cent. After the preferential allotment, Tata Sons' holding will go up to 23.85 per cent, taking the promoters' holding to 30.28 per cent.
Subsequently, Tata Sons' holding will be raised to 27.48 per cent, through the conversion of warrants into equity shares, and the promoters' holding will go up to 33.60 per cent.
Tata Sons will be entitled to exercise the option after April 1, 2007, but not later than 18 months from the date of issue of the warrants.
The board of directors of the company today approved the proposal to offer to Tata Sons on a preferential basis 2,70,00,000 ordinary shares of Rs l0 each at a price of Rs 516 per share, involving an amount of Rs 1,393 crore (Rs 13.93 billion). Tata Steel's share rose 4.92 per cent on the BSE to close at Rs 563.85 on Wednesday.
Addressing shareholders, Tata said: "We are looking to reach greater marks through acquisitions. Over the next 10 years, we want to make Tata Steel a 30-million-tonne-per-annum company, which will give us respect in the country, and significance on a global scale."
Tata Steel has capex plans worth Rs 70,000 crore (Rs 700 billion) for the next 10 years. "The investments will be in the form of expansions, new projects, and acquisitions; and the amount will be raised from internal accruals and borrowings," Tata said.