Breaking News 2009.11.16 – Stupid TATA, will sink TISCO one day

Title-Breaking NewsRef: 09-BN-002 of 16 November, 2009

Stupid TATA, will sink TISCO

Breaking News

Instant Views

Date:  13-Nov-2009


Broker Source:
Tata Steel board has approved the exchange of Convertible Alternative Reference Securities (CARS) with Foreign Currency Convertible Bonds (FCCBs). As per the scheme, $875mn worth of CARS would be converted into equivalent amount of FCCBs.

The company had issued CARS to fund the acquisition of Corus, which were to mature in 2012 and were carrying a coupon of 5.15% per annum. The new FCCBs issued would have a coupon of 4.5% per annum and a maturity date till 2014. The FCCB’s will be convertible into equity shares at conversion prices of Rs605.53 per share.

The conversion of CARS into FCCBs will help the company to extend its debt payment period by two years as well as reduce interest cost and future repayment obligations. We maintain NEUTRAL view on the stock.

Ratan Tata never wants to learn. He has turned from stubborn to obstinate.  He appears to have lost the sense of discrimination. Read the following views.

He is in deep trouble by purchasing Corus. When the whole world was wanting to invest in India, he ran to London to buy Corus for over $ 12 billions, the vagabond child Five times the size of TISCO that no one wanted to own in last two decades.

He finds difficult to raise the debt from London, the biggest financial center. The US and Swiss bank backed out after arranging a deal and earning fat fees.

He is trying to convert CARS with 5.5% Coupon, sort of temporary bridge loans, is sought to be replaced with FCCB or Foreign Currency Convertible Bonds with 4.5% coupon.

Nothing wrong with that. However he is very greedy. He is setting a conversion price of Rs 605.53 at a time when the whole world is at highest economic risk.

He is already paying high coupon of 4.5% when the market interest rates are less than 1% for US dollar. However, when he needs equity badly, why does he set high conversion price?

Supposing the economy continues to slide and does not recover, which is very likely, his shares may not trade around that level. It is possible that the shares may trade at half the price or even a third.

In that case, the FCCB which he believes will not enjoin upon him debt obligations will suddenly become real repayment obligations, same way the CARS has become actual liability.

Never become greedy when you are in deep debt. Take the example of Hutchison in Hong Kong. When it received over $ 24 billions worth of shares from Vodafone in payment of its loss making Orange, the Li Ka Shing, the most admirable businessman, did not cash it.

The Vodafone shares were trading at about 280 pence. Instead of selling the shares in the market and walk away with huge cash, he became greedy and issued over $ 2 billions of Convertible bonds, convertible into Vodafone shares at 30% premium or at about 360 pence.

The market crashed, and Vodafone shares tumbled to less than 100 pence, up to 84 pence. Meanwhile, the Convertible Bonds (CB) matured for payment without conversion.

Mr. Li Ka Shing lost huge fortune.  Ratan Tata is following his footstep. While LKS was talking from the highest position of strength, Tata is shouting from the lowest position of weakness.

With banking crisis deepening, and interest rates rising (they will flare up very fast), the equity market will begin to falter on the dose of “slow poison of rising interest rates”.

His stock may become one third or at the most of one half. Corus is a big stone around his neck. He is counting on time – 2014 is 5 years away, and may be things will turn around. He hopes. But the rising interest rates will make his huge debt an unaffordable exercise. The good local outfit of TISCO will be buried under the dead weight of elephant, that is, Corus.

Why not businessmen too do not retire at 65.  Advanced age takes heavy toll on them, they become autocratic and obstinate.

Mutual Funds do write on the wall – Past Successes do not necessarily guarantee the future performance.

So yeah, we remember our grandma’s story – once upon a time, there used to be a  King…

Oh nanny, that is a very old story, Tell us something new (story). Nanny thought over for a while and quipped – once upon a time there used to be a businessman in India, He was called Ratan Tata who…..

GRRRRR. Every one slept and started snoring in the room filled with eerie silence.

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