News: Tata ring-fencing in full swing

(TT 15/09/2006) Mumbai - Tata Sons, the holding company of the conglomerate, is raising its stake in key group firms. After scooping up shares of Tata Chemicals and Videsh Sanchar Nigam Ltd from the open market, it will be picking up more shares in Tata Tea through a preferential share issue that is designed to raise the group’s holding from the present level of 29 per cent.

Tata Tea will issue preference shares with attached warrants to Tata Sons to finance the acquisition of Energy Brands Inc, US. Last month, the Tata group announced that it would be acquiring a 30 per cent stake in US-based energy drink maker Glaceau for $677 million (Rs 3,150 crore). Both Tata Sons and Tata Tea will jointly acquire this stake from TSG, a private equity firm. The acquisition will be done through Tata Tea’s UK subsidiary, Tata Tea (GB) Ltd.

Tata Tea today told stock exchanges that of the total equity contribution required for the acquisition, $192 million (Rs 890 crore) will be provided by the company and $58 million (Rs 270 crore) by Tata Sons.

At a board meeting held today, the directors decided that of a total amount of about Rs 890 crore that has to be invested in Tata Tea (GB), about Rs 420 crore to Rs 460 crore would be raised through a preferential issue of equity shares with attached warrants to the main promoter company, Tata Sons.

It is not known at this stage what the group’s holding would be after the conversion of the warrants. Tata Tea said shareholders’ approval would be sought to raise additional capital not exceeding 20 per cent of the existing capital, including the preferential issue. Initially, the company proposes to proceed only with the preferential issue. The remaining amount will be raised through the sale of certain investments and from internal resources.

According to Tata Tea, this method of financing will minimise the cost of the acquisition. On Wednesday, Tata Chemicals said Tata Sons had picked up a 2.97 per cent stake in the company through market purchases, taking its total stake in the company to 15.28 per cent.