Ref: 09-BN-002 of 16 November, 2009
Stupid TATA, will sink TISCO
Breaking News
Date: 16-Nov-2009
News Source: Livemint.com
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.
Instant Views
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 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 I
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 with eerie silence.