Sources of Long-Term Finances

A business requires funds to purchase fixed assets like land and building,plant and
machinery, furniture etc. These assets are considered as the foundation of a business.The
capital required for these assets is called fixed capital. A part of the working capital is also
of a permanent nature.Funds required for this part of the working capital and for fixed
capital is called long term finance.

Purpose of long term finance is to:

 Finance fixed asset

 Finance the part of working capital
 Finance growth and expansion of business

The main sources of long term finances are:

1. Shares:
These are issued to the general public. These may be of two types:
(i)Equity (ii) Preference.
Share holders are considered as owner of the business
2. Debentures:
These are also issued to the general public. The holders of debentures are the
creditors of the company.
3. Public Deposits :
General public also like to deposit their savings with a popular and well established
company which can pay interest periodically and pay-back the deposit which can
pay interest periodically and pay-back the deposit when due.
4. Retained earnings:
The company may not distribute the whole of its profits among its shareholders. It
may retain a part of the profits and utilize it as capital.
5. Term loans from banks:
Many industrial development banks, cooperative banks and commercial banks grant
medium term loans for a period of three to five years.
6. Loan from financial institutions:
There are many specialised financial institutions established by the Central and
State governments which give long term loans at reasonable rate of interest. Some
of these institutions are: Industrial Finance Corporation of India ( IFCI), Industrial
Development Bank of India (IDBI), Industrial Credit and Investment Corporation of
India (ICICI), Unit Trust of India ( UTI ), State Finance Corporations etc.
Tata Steel Ltd. :

Tata Steel formerly known as TISCO and Tata Iron and Steel Company Limited, is the
world's seventh largest steel company, with an annual crude steel capacity of 31 million
tonnes. It is part of Tata Group of companies. Tata Steel is also India's second-largest and
second-most profitable company in private sector with consolidated revenues of Rs
1,32,110 crore and net profit of over Rs 12,350 crore during the year ended March 31,
2008-09. The Group recorded a turnover of Rs.147,329 Crores (US$ 28,962 million) in
2008 - 2009

Long Term finances of tata steel:

Shares:
The company will issue 1.50 crore ordinary equity shares at Rs 594 a share aggregating to
Rs 891 crores. According to SEBI ICDR regulations, 2009, an amount equal to 25% of the
price (Rs 594 a share) amounting to Rs 148.50 a warrant, aggregating to Rs 178.20 crore,
would be paid by Tata Sons on allotment of the warrants.
Preference Shares are the shares which carry preferential rights over the
equity shares, during the financial year 2008-09 there was an increment of 14 lac approx.
the company raised its equity shares to create greater confidence of investors and
creditors, and moreover company raises its capital by issuing equity shares

Debentures:
Tata Steel on 8 May,2010 has raised Rs 2,000 crore through private placement of rupee
debentures as part of its long-term financing plan. Tata Steel has raised Rs 2,000 crore
including the green shoe option through private placement of redeemable, non-convertible
rupee debentures.
Raising debentures have facilitated Tata Steel to raise its funds for the long term planning,
as debentures are ordinarily used for fixed period, the company can make best use of these
funds. Moreover debentures are mostly secured, Tata steel can create a charge
on its assets in favour of debentureholders.

Public Deposits:
An undertaking which wants to raise funds through public deposits advertises in the
newspapers. The advertisement highlights the achievements and future prospects of the
undertaking and invites the investors to deposit their savings with it.
Public deposits are easy,flexible and simple as it does not require any legal formalities,
though public deposits are not secured but they do not have charge over the fixed asset of
the company. Expenses incurred on borrowing through public deposits is much less than
expenses of other sources
Retained Earnings:
The portion of the profits which is not distributed among the shareholders
but is retained and is used in business is called retained earnings or
ploughing back of profits. Retained earning is the part of working capital which helps a
company to face ups and downs in business.
Tata steel had an increment of 12780 crore in the financial year 2009-10.
This facilitated tata steel to pay dividend to the share holders even if they are not making
profits

Term loans from Banks:

Tata Steel drew loans to fund its $12.9 billion acquisition of Corus in 2007, just before the
global economic slump pared demand for steel and caused banks to curtail lending. The
company began talks with lenders including Citigroup Inc. to refinance as much as 3.5
billion pounds ($5.4 billion) in loans for its U.K. unit. Royal Bank of Scotland Group Plc,
Standard Chartered Plc and BNP Paribas SA are also part of the negotiations, declining to
be identified before an official announcement. The existing debt is due to be paid from
2012 to 2014.
Tata steel drew loans to finance the expansion and growth of the business at jamshedpur
field, and even to fund the acquisition of corus in 2007.
The company is seeking ways to reduce its debts of $9.8million and plans to refinance its
long term loans of $6.5 billion with no given time frame.
As loans from commericial banks are the flexible source of finance, thus tata steel can pay
it whenever their objective is met.

Loans from financial institution:

TATA group-owned company, Tata Steel has drew a loan worth Rs 2,000-crore from Life
Insurance Corporation (LIC), India's largest financial institution. Under the arrangement,
LIC will subscribe to Tata Steel's non-convertible debentures (NCD) . Apart from latest
development, Tata Steel plans to raise Rs 3,000 crore through the NCD issue.

Conclusion:

Company seeks for higher growth in businesses from the domestic and International
Market. In the steel segment, the company faces competition from: JSW steel, Welspun
Corp. , Ispat industries, Steel authority etc.The construction & expansion of the industry is
growing rapidly and there are large number of investors coming forward to make
investment due to company equity in the market. The government policy towards the
development of infrastructure sector will increase company’s volumes and act as a catalyst
to the company’s growth.The company is gradually increasing its long term finances, which
support company to finance its fixed assets and to finance is business expansion, through
seeking funds from various sources. The Group recorded a turnover of Rs.147,329 Crores
in 2008 – 2009.The company hopes to witness a strong growth over the next financial year
as steel prices have firmed up and the demand has been continuously rising. The franchisee
units in steel have grown up, consolidationg existing market share via delivering quality
products and services to the customer.
 Assignment
Of
Financial management
On
Sources of long term Finances
(Tata Steel Ltd.)

Submitted by:
Shruti Singh
10BSP1255