Tata steels the show
The shine just refuses to fade as far as India is concerned. To continue the good tidings and the wave of euphoria sweeping across the country, Tata Steel Ltd. won the bid to acquire Anglo Dutch steel major Corus Group Plc. The Tata Group company emerged the winner over Brazilian steel firm CSN in the nine-round auction. The 608 pence per share final offer from Tata Steel was higher than the 603 pence share final bid from CSN. It was 34% higher than Tata Steel's original bid of 455 pence per share. With this, Tata Steel is set to become the world's fifth-biggest steelmaker after winning the battle for Corus with a £6.2bn (US$12bn) offer. Corus shareholders will be entitled to receive 608 pence in cash for each Corus share. This represents a price of 1216 pence in cash for each Corus ADS.
The final price tag values Corus at 7.6 times Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) for 2006, well above the multiple Mittal Steel paid for Arcelor which was 4.6 times historic EBITDA. On an enterprise value of US$13bn, the deal translates into a multiple of about 7 times EBITDA from continuing operations for the year ended December 31, 2005 and a multiple of approximately 9 times EBITDA from continuing operations for the 12 months ended September 30, 2006 (excluding the non-recurring pension credit of £96mn).
The financing arrangements put in place by Tata Steel prior to announcement of its revised offer for Corus on December 10, 2006 remain in place. The additional finance required will be funded by way of a combination of additional credit facilities and a cash contribution to Tata Steel UK. Tata Steel said that ABN AMRO and Deutsche Bank, as joint financial advisers were satisfied that sufficient resources were available to satisfy in full the consideration payable to Corus shareholders. But, the stock market refused to go along with the Tata Steel management, amid concern that the company had paid too high a price and that the leveraged buyout will put its balance sheet under severe strain.
RBI ups the ante vs inflation
The Reserve Bank of India (RBI), in its third quarter review of monetary policy, has shifted its stance from emphasis on price stability and growth to that of ensuring price stability and anchoring inflation expectations. The RBI hiked the repurchase rate (repo rate), the rate at which lends to banks, by 25 basis points to 7.5% while leaving the reverse repo rate unchanged at 6%. This follows the increase by 25 basis points each on October 31, 2006 and July 25, 2006. The central bank also kept the Cash Reserve Ratio (CRR) and the bank rate unchanged at 5.5% and 6%, respectively. The RBI said that inflation will be maintained between 5% and 5.5% by the end of March 31. It also increased the GDP growth target for the current financial year to 8.5-9% from the earlier 8%.
Further, in its attempt to rein in credit growth, the RBI has increased the provisioning requirement on standard assets in the fast-growing retail assets segment (excluding residential housing), capital market exposures, real estate sector and credit card receivables to 2% from the existing level of 1%. In addition, the central bank has increased the provisioning requirement from 0.4% to 2% as well as risk weight from 100% to 125% for banks’ exposures to systemically important non-deposit taking non-banking finance companies (NBFC-ND-SI), which do not qualify as asset financing companies.
The RBI would use all policy instruments, including the CRR, to ensure the appropriate modulation of liquidity in responding to the evolving situation; and to ensure the maintenance of price stability, the RBI said. "To the extent the current inflationary pressures are attributable to monetary conditions, it is essential to undertake appropriate measures, in continuation of those already taken and in the light of anticipated developments," the RBI said in its quarterly monetary policy review.