Tata Global Beverages up on low coupon bonds
Tata Global Beverage is up 1.8% at Rs. 160.60 per share, before cooling off from the day’s high of 161. Broader markets are trading absolutely flat, with BSE Sensex up 50 points at 20,600. The world's second-largest tea group plans to raise Rs 325 crore via issue of 3-year low coupon bonds, rated AA+ by ICRA. These three-year bonds will carry 3% coupon and redemption premium of 9.75%, leading to effective annual return of 6.06% to investors.
Thus, company will be able to defer a large part of interest payout to a later date through the low coupon bond. Since these bonds will not have a sinking fund to collect accrued interest, Indian banks will not be allowed to buy them as per a recent RBI directive. Thus, the investor pool will be quite lower. Before RBI's move, Tata Steel and Indian Hotels of Tata group had issued low-coupon bonds. However, small issue size and Tata tag should help the issue sail through, being the first after RBI ban.
With a market cap of a tad below Rs. 10,000 crore, Tata Global had consolidated networth of Rs. 4,810 crore and net debt of barely Rs. 317 crore, as of 31st March 2013, giving it ample scope to leverage its balance sheet further.