BBA331: Financial Management
CIA 1.1
Description: Demonstrate understanding of the principles and concepts of financial
management and Extend the knowledge of financial management concepts in making finance
decisions
Company: Tata Steel
Submitted By
2023507 Arjun Sreejith Rayaroth
2023511 Ayush Sikaria
2023513 Billa Sathwik Reddy
2023567 Fida Kauser
2023589 Kashish Kothari
Submitted to
Dr. Sathish P
Date: 8th August 2021
Introduction of TATA Steel
Eligibility Criteria
Debentures
1. This Debt instruments should be rated by a credit rating agency.
2. Debt Equity Ratio in issue of debentures should not exceed 2:1, but this criterion can
be relaxed if the project is capital intensive.
3. It is compulsory to appoint Debenture Trustees for debentures with a maturity over 18
months.
4. Any Indian Corporation that issues debentures must create a debenture redemption
reserve to protect the investors against default by the company.
Unsecured Loans
1. The candidate must be between 25-65 years of age.
2. The business must have a vintage of at least three years.
3. The business must have its ITR filed for at least the past year.
4. The business must have its previous two years’ turnover audited by a chartered
accountant.
Shares
1. The company must have a minimum equity capital of Rs. Five crores and 60% of this
amount should be offered to the public.
2. A minimum of 25% of securities must be offered to the public through its prospectus.
3. There is a requirement of at least Five public shareholders for every Rs. 1 Lakh of
fresh issue of capital.
4. Company with paid up share-capital of more than Five crores needs to be registered in
a recognized stock exchange.
Inter-corporate deposits from associates
1. A company cannot lend more than ten percent of its total net worth to a single
company and cannot lend beyond 30 percent of its net worth in total.
Retained Earnings
1. The only eligibility criteria are that the company should be able to match at least the
amount of declared dividend which was approved by the shareholders (declared
dividend).
Liquidation of Assets
1. No such eligibility criteria for liquidation of assets.
Secured Loans
1. While 18 is the appropriate age but most banks require the applicant to be 21 years or
more.
2. A certain minimum amount of annual income is required, usually Rs. 3 lakhs but it
varies from lender to lender.
3. Applicants must be salaried or self-employed or professionals or business institutions.
4. Applicants must have assets of sufficient value to match the required collateral.
Hybrid perpetual securities
1. The corporate, as per the latest audited balance sheet, needs to have a net worth of not
less than 4 crore rupees;
2. The corporate has been approved of working capital limit or a term loan by banks or all
India financial institutions;
3. The borrower account of the corporate is categorized as a standard asset by the
financing banks.
Documents Required
To issue debentures:
1. Debenture Subscription Agreement.
2. Offer Letter for private placement.
3. Records of a private placement offer.
4. Debenture Trustee Agreement.
5. Mortgage Agreement.
To take an unsecured business loan:
1. Identity Card such as Aadhaar Card, PAN Card, Driver’s License.
2. Address Proof such as Passport or Lease Agreement.
3. Bank Statement of the last two years.
4. Audited financials of the past three years.
5. Other mandatory business documents.
To Issue Shares
1. The auditor or secretary of the company needs to declare that the share certificate has
been stamped for listing.
2. Letter of allotment, Receipts for all securities deposited and letter of a right shall be
issued, Receipts for all securities deposited
3. Consolidation and renewal certificates, certificate of the division, letter of allotment,
transfer, and letter of rights, etc.
4. The company needs to notify the stock exchange regarding the board meeting.
To take Inter-corporate deposits from associates
1. The Procurement procedure of such deposits is effortless, and hence there is no such
Document required.
For Retained Earnings
1. There are no official documents (external, i.e., from outside the company) required to
approve retained earnings. However, it is expected in most accounting practices
(mandatory in GAAP) to prepare a ‘Statement of Retained Earnings’ that would be
published in the company’s annual report.
For Liquidation of Assets
1. There is no such documentation required for liquidation of assets
2. Company only needs to have proper proof of ownership of asset and
agreement while liquidating the asset.
To Apply for secured loans
1. Address Proof, Identity Proof,
2. Income Proof
3. Proof of ownership of collateral to mortgage
4. Past Income tax returns
Hybrid perpetual securities
1. Debenture Subscription Agreement;
2. Offer Letter for private placement in Form No. PAS – 4 and Application Forms;
3. Records of a private placement offer in Form No. PAS – 5;
4. Debenture Trustee Agreement;
5. Mortgage Agreement for the creation of charge on assets of the company.
Various sources available for TATA Steel to raise funds
1. Debentures:
General Info:
Debentures are bond or a debt instrument that is unsecured by collateral. Since debentures do
not have any collateral backing, they must rely on the issuer's reputation and creditworthiness
for support. Both corporations and governments issue debentures to raise capital or funds
frequently. The loan is issued to different corporations at a fixed rate of interest based on
their reputation.
Interest Rates and Repayment Options:
Debentures have either a floating or a fixed-interest coupon rate return to investors and will
usually list a repayable date. When the interest payment is due, the company will pay the
interest before they pay the shareholder their dividend. On due date, the company has two
options of repayment of principal. They can either pay in one lump sum or make payments in
instalments.
2. Unsecured Loans:
General Info:
Unsecured loans does not require any form of collateral. Instead of relying on a borrower's
assets as security, lenders provide unsecured loans based on a borrower’s creditworthiness.
Unsecured loans can be credit cards, personal loans, Student loans, etc.
Interest Rates and Repayment Options:
Interest rates of an unsecured business loan can go from 11% up to 36%. It is usually repaid
in monthly instalments and the related interest until the loan is completely paid back. Failure
of repayment will usually involve an increase in interest rates.
3. Shares
General information:
A firm’s capital is divided into equal units, and these small units are known as shares. A
share determines the percentage of ownership in a particular company or even an asset. The
people who invest in these firms and hold these shares are known as shareholders. Hence a
share is a unit of ownership that portrays an equal proportion of a firm's capital.
Common shares allow voting rights and returns for these units of the company. Most
companies have shares, but only the shares of publicly traded companies can be found on
stock exchanges.
Interest rates and repayment options:
The company has no legal obligation to repay its equity to its investors and shares. Still, they
may pay dividends as a distribution of profits, but they do not pay interest.
4. Inter corporate deposits from associates
General information:
Inter-corporate deposit is an unsecured borrowing by corporates and financial institutions
from other corporate entities. The corporate having surplus funds would generally lend to
another corporate in need of funds.
Interest rates and repayment options:
The interest rate on such deposits is not fixed. It usually depends on the amount and the
tenure of lending. Still, usually, a higher rate of interest would be demanded by the lender as
the lending would be on an uncollateralized basis.
5. Retained Earnings
General Info:
It is the amount of net income that a company retains from the shareholders, i.e., the amount
that a company can use to invest in itself rather than pay out extra dividends. From a growth
perspective, this concept is closely related to earnings per share and its stock price since they
show how efficiently the company is utilizing its retained earnings.
Interest Rates and Repayment Options:
There is no concept of interest rate or repayment when it comes to retained earnings.
However, the company generally expects to provide higher dividends a year or two after
retaining relatively high amounts from the shareholders.
6. Liquidation of Assets
General Info:
Liquidation of assets refers to the process of selling company-owned holdings as a source of
funds. Generally, this is not preferred since it generates an opinion that the company is in
hardship and is winding up. However, companies use this option in many other situations, out
of which the primary one is upgrading to better technology (by liquidating obsolete
machines).
Interest Rates and Repayment Options:
Similar to retained earnings, liquidation of assets has no concept of interest or repayment
except when a loan is taken against said assets. In that case, the payment options are the same
as any other secured loan (direct repayment, instalments, paying with assets, etc.).
7. Secured Loans
General Information:
Secured loans are personal or business loans that require collateral as a condition of
borrowing. Secured loans can be found at any bank, credit unions, or any online lenders
Interest Rates and Repayment Options:
Secured loans usually allows borrowers to enjoy lower interest rates, as they present a lower
risk to lenders. However, certain secured loans can carry higher interest rates and can be paid
in installments.
8. Hybrid perpetual securities
General information:
Hybrid securities are a mix of debt and equity and usually having no stated maturity. The
securities can thereby be considered as debt for tax purposes and as equity for
ratings. Perpetual hybrids typically pay a higher coupon than bonds with a fixed maturity
because they rank below senior and subordinated debt in the repayment obligations of a
company.
Tata Steel is the first non-bank Indian corporate to sell hybrid perpetual securities and has
$18.3 billion of bonds and loans due through 2031, the most of any issuer in the South Asian
nation.
Interest rates and repayment options:
Securities carry an annual interest rate of 11.8%. Tata Steel has raised Rs 1,500 crore
through issue of perpetual hybrid securities (bonds) on March 18, 2011 which will carry an
annual interest rate of 11.8 per cent with an option to raise it after 10 years.
Drawing inferences on the use of different sources of funds.
References
1. Shares. (n.d.). Investopedia. https://www.investopedia.com/terms/s/shares.asp
2. Inter corporate deposits. (n.d.). Share and Discover Knowledge on
SlideShare. https://www.slideshare.net/prithvighag/inter-corporate-deposits-24373239
3. F. (2021). Retained earnings. Investopedia. https://www.investopedia.com/terms/r/retainedearnings.asp
4. Sweta. (2019, December 20). Retained earnings. Free Income Tax efiling in India: ClearTax | Upload your Form-
16 to e-File Income Tax Returns. https://cleartax.in/g/terms/retained-earnings
5. M. (2020, November 4). Retained earnings: Why companies retain their
profits? GETMONEYRICH. https://getmoneyrich.com/retained-earnings/
6. Hayes. (2021). Liquidate. Investopedia. https://www.investopedia.com/terms/l/liquidate.asp
7. Sujaini. (2019, December 20). Liquidate. Free Income Tax efiling in India: ClearTax | Upload your Form-16 to e-
File Income Tax Returns. https://cleartax.in/g/terms/liquidate
8. Secured loans explained. (n.d.). Investopedia. https://www.investopedia.com/secured-loans-5076025
9. List of documents needed to apply for a loan against property. (2018, October 10). Apply for Loans, EMI Finance,
Credit Card and Insurance – Bajaj Finserv. https://www.bajajfinserv.in/insights/list-of-documents-needed-to-
apply-for-a-loan-against-property
10. Secured loans. (n.d.). CreditMantri. https://www.creditmantri.com/secured-loans/#eligibility-criteria
11. Database. (n.d.). Reserve Bank of India. https://rbi.org.in/Scripts/bs_viewcontent.aspx?Id=2071
12. Issuance of non-convertible debentures: Procedure and act. (2020, April 27).
Enterslice. https://enterslice.com/learning/issuance-of-non-convertible-debentures-procedure-and-various-laws-
applicable/
13. Guide on issuing NCDs by private placement. (n.d.). TaxGuru. https://taxguru.in/company-law/guide-issuing-
ncds-private-placement.html#Procedure_for_issue_of_Non-
_Convertible_Debentures_on_Private_Placement_Basis
14. Anurag Joshi & Shelley Smith/Bloomberg. (2011, March 22). Biggest debtor Tata steel turns to hybrid finance.
mint. https://www.livemint.com/Money/wByip48JWnv8HG0AKV7MKN/Biggest-debtor-Tata-Steel-turns-to-
hybrid-finance.html
15. Tata steel : Record date - 11.50% perpetual hybrid securities of ₹775 crore – ISIN INE081A08173 |
MarketScreener. (n.d.). Stock Market Quotes and Financial News |
MarketScreener. https://m.marketscreener.com/quote/stock/TATA-STEEL-LIMITED-6491942/news/Tata-Steel-
Record-Date-11-50-Perpetual-Hybrid-Securities-of-8377-775-Crore-ndash-ISIN-INE08-32903666/
16. (n.d.). Steel Supplier & Manufacturer in India | Tata Steel. https://www.tatasteel.com/media/13367/tata-steel-
limited-record-date.pdf
