Tuesday, November 25, 2008

Tata Chemicals – Refinancing of US$ 350 mn bridge loan


Tata Chemicals (TCL) has made arrangements to refinance its bridge loan of US$ 350 mn at a very competitive interest rate (however company has not mentioned the effective interest rate). TCL had earlier taken this loan to fund its US$ 1 bn acquisition of General Chemical (GCIP). Funding was arranged through term loan of US$ 450 mn on TCL's balance sheet, US$ 350 mn bridge loan on SPV (non recourse to TCL's balance sheet) and balance through sale of investments. Refinancing will be completed through debt of US$ 300 mn and balance US$ 50 mn through internal accruals. This is a six year door to door facility with interest linked to LIBOR + Margin Grid which is based on Net debt to EBIDTA Ratios. The facility is without recourse to Tata Chemicals Ltd. However the company has not indicated about the effective interest rates or margin grid, we expect effective rate should be in range of 6-6.5% (given 6 months LIBOR at 2.6%).  Our estimated interest expense factors average interest rate of 6% and hence interest expense should broadly be in line with expectations.

TCL's initiative to boost Bio- Fuel's foray

TCL has entered into definitive agreements to invest S$25 million (INR 825 mn) in JOil (Singapore) Pte. Ltd. JOil; a Jatropha Seedling Company based in Singapore, has been set up by the Temasek Life Sciences Laboratory Ltd. (TLL), along with other investors in Singapore. This JV will get TCL exclusive marketing rights for JOIL's Jatropha seedlings in India and East Africa and a preferential price for seedlings it requires for its own cultivation of Jatropha. TCL has plans to enter in bio fuel in India and we believe that this agreement is in line with company's ambitions to boost its bio fuel business and secure future raw materials.

We have HOLD rating on the stock with price target of Rs 194, based on our FY09 estimated book value.

n        Dealer Comments

The markets opened the session on a significant positive note with 260 odd point's upward gap on the back of positive cues from the global markets particularly the strong US markets triggered by US government's rescue pf Citigroup. After a good start markets were showing a good resistance at day's higher levels and post noon trades started giving away the day's initial gain and slipped in the negative zone. The fall was led by concerns after FM hinted about India likely to miss its revenue and fiscal deficit targets in the current financial year and easing of Asian markets led by World Bank announced China's growth could slow to 7% next year. The late fall in the indices was mainly led by heavy selling in oil & gas, capital goods, banking and telecom stocks. The overall traded volumes were slightly lower compared to earlier day by almost 3% and were at Rs 563 bn. Delivery-based volumes were at 34.4% the total turnover. Among the institutional activities FII's were net sellers to the tune of Rs 3.12 bn while Domestic Funds were net buyers to the tune of Rs 1.04 bn respectively in the cash segment on 24th November 2008. While on 25th November 2008 FII's sold shares worth Rs. 1.62 bn in cash segment (provisional) and in the F&O segment bought Futures and Options worth Rs. 6.45 bn whereas Domestic Funds bought shares worth Rs. 1.55 bn (provisional).

         Technical Comments

Nifty opened on a positive note and made a high of 2790, thereafter selling pressure was witnessed on higher levels and by the end of the day Nifty shed all its gains and finally closed at 2654 with a loss of 2.00%. On the sectoral indices front, the BSE Oil & Gas index (-3.86%) followed by BSE Realty index (-2.51%) followed by BSE Cap Good index (-2.56%) was the top-loosers. While the other indices also closed negative. The Advance Decline ratio was almost 2:3.

Yesterday Nifty opened on a positive note and broke Monday's high of 2740, and made new high of 2790, which was very near to our mentioned level of 2832, but thereafter Nifty faced lot of resistance at 2790, which was the upper band of the "Channel" and was trading in the range of 2783 to 2739. During the post lunch trading hour's broad based selling pressure was witnessed and Nifty broke the above mentioned range and there by fell sharply and made a low of 2638. By the end of the trading session Nifty shed all its gains and finally closed below 2700 with a loss of 2.00% at 2654. Now in the coming days Nifty has strong resistance at 2790 levels and if it starts trading above this then we will see further recovery, however downside Nifty is having support at 2612 levels and if it starts trading below this level then it can test its recent bottom of 2502.However on should keep a strict stop-loss of 2501 for all their long-positions.

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