Tata Tea recovered on Friday after the company's subsidiary raised fresh debt to retire high-cost loans, which will cut interest costs by six million pounds a year.

The scrip of the Tata group tea major surged by 2.13% to Rs 177.25 on the BSE by 14:54 IST, recovering from an intra-day low of Rs 171.45. A volume of 44,484 shares was recorded on the counter. Between 28 February and 6 March 2003, the scrip had shed 6.2% to Rs 173.55 from Rs 185.

The recovery on the Tata Tea counter was purely attributed to reports that the company's subsidiary Tata Tea has raised a fresh debt of £174 million, all of which is Senior Debt, to retire its high-cost loans. The refinance was co-arranged by Rabo Bank International together with the Royal Bank of Scotland Plc.

The weighted average interest cost of the new debt raised by Tata Tea GB averages approximately 6.70% per annum, thereby affecting a savings in the future interest costs of the company by approximately £6 million per annum. On 28 February 2003, the debt that was outstanding in Tata Tea, the special purpose vehicle that holds 100% equity of Tetley Group, UK, was refinanced. Consequently, £114 million of Senior Debt, £49 million of Mezzanine Debt and £8 million of Secured Loan Stock Debt, aggregating to £171 million, has been paid off - the weighted average interest cost of which was approximately 10.22% per annum.

Tata Tea has plans to merge the SPV with itself after the latter repays its loans. At the time of acquiring Tetley, Tata Tea's debt-equity ratio stood at 3:1, which has reduced to 1:1.75 currently and is expected to come down to 1:1.6 by the end of the next financial year following the infusion of fresh funds. A certain segment of the debt is expected to be paid through internal accruals.

Tata Tea's interest burden, which was £26.11 million in 2000-01, reduced to £23.33 million in 2001-02. It is likely to fall further next fiscal with the restructuring of high-cost debt.

Meanwhile, Tata Tea's recent financial performance was not very impressive. For the quarter ended 31 December 2002, it posted a 17.90% drop in net profit to Rs 16.97 crore on total income of Rs 191 crore (Rs 1.91 billion). For the nine months ended 31 December 2002, the company's net profit stood at Rs 67.10 crore on total income of Rs 567.22 crore (Rs 5.67 billion).

TTL's operating margins have been under pressure on account of falling realisations, particularly in the auction centres.

The tea industry has been undergoing very tough times in the past three years on account of sharp and sustained fall in prices. As a result, many tea plantations are deep in the red as the realisations are not enough to offset the rising costs.

BSE code: 500800