INTRODUCTION Finance is a important input for any type of business and is needed for working capital and for

permanent investment. The total funds employed in a business are obtained from various sources. A part of the funds are brought in by the owners and the rest is borrowed from others-individuals and institutions. While some of the funds are permanently held in business, such as share capital and reserves (owned funds), some others are held for a long period such as long-term borrowings or debentures, and still some other funds are in the nature of short-term borrowings: The entire composition of these funds constitute the overall financial structure of the firm. You are aware that short-term funds keep on shifting quite often. As such the proportion of various sources for short-term funds cannot perhaps be rigidly laid down. The firmhas to follow a flexible approach. A more definite policy is often laid down for the composition of long-term funds, known as capital structure. More significant aspects of the policy are the debt equity ratio and the dividend decision. The latter affects the building up of retained earnings which is an important component of longterm owned funds. Since the permanent or long-term funds often occupy a large portion of total funds and involve longterm policy decision, the term financial structure is often used to mean the capital structure of the firm. There are certain sources of long-term funds which are generally available to the corporate enterprises. The main sources are: share capital (owners' funds) and longterm debt including debentures (creditors' funds). The profit earned from operations are owners' funds-which may be retained in the business or distributed to the owners (shareholders) as dividend. The portion of

profits retained in the business is a reinvestment of owners' funds. Hence, it is also a source of long-term funds. All these sources together are the main constituents of the capital of the business, that is, its capital structure.

WHAT IS CAPITAL STRUCTURE? The term `capital structure' represents the total long-term investment in a business firm. It includes funds raised through ordinary and preference shares, bonds, deben -tures, term loans from financial institutions, etc. Any earned revenue and capital ' surpluses are included. Capital Structure Planning Decision regarding what type of capital structure a company should have is of critical importance because of its potential impact on profitability and solvency. The small companies often do not plan their capital structure. The capital structure is allowed to develop without any formal planning. These companies may do well in the short-run, however, sooner or later they face considerable difficulties. The unplanned capital structure does not permit an economical use of funds for the company. A companyshould therefore plan its capital structure in such a way that it derives maximum advantage out of it and is able to adjust more easily to the changing conditions.

INTRODUCTION
Backed by 100 glorious years of experience in steel making, Tata Steel is among the top ten steel producers in the world with an existing annual crude steel production capacity of 30 Million Tonnes Per Annum (MTPA). Established in 1907, it is the first integrated steel plant in Asia and is now the world`s second most geographically diversified steel producer and a Fortune 500 Company. Tata Steel has a balanced global presence in over 50 developed European and fast growing Asian markets, with manufacturing units in 26 countries. It was the vision of the founder; Jamsetji Nusserwanji Tata., that on 27th February, 1908, the first stake was driven into the soil of Sakchi. His vision helped Tata Steel overcome several periods of adversity and strive to improve against all odds. Tata Steel`s Jamshedpur (India) Works has a crude steel production capacity of 6.8 MTPA which is slated to increase to 10 MTPA by 2010. The Company also has proposed three Greenfield steel projects in the states of Jharkhand, Orissa and Chhattisgarh in India with additional capacity of 23 MTPA and a Greenfield project in Vietnam.

Through investments in Corus, Millennium Steel (renamed Tata Steel Thailand) and NatSteel Holdings, Singapore, Tata Steel has created a manufacturing and marketing network in Europe, South East Asia and the pacific-rim countries. Corus, which manufactured over 20 MTPA of steel in 2008, has operations in the UK, the Netherlands, Germany, France, Norway and Belgium. Tata Steel Thailand is the largest producer of long steel products in Thailand, with a manufacturing capacity of 1.7 MTPA. Tata Steel has proposed a 0.5 MTPA mini blast furnace project in Thailand. NatSteel Holdings produces about 2 MTPA of steel products across its regional operations in seven countries. Tata Steel, through its joint venture with Tata BlueScope Steel Limited, has also entered the steel building and construction applications market. The iron ore mines and collieries in India give the Company a distinct advantage in raw material sourcing. Tata Steel is also striving towards raw materials security through joint ventures in Thailand, Australia, Mozambique, Ivory Coast (West Africa) and Oman. Tata Steel has signed an agreement with Steel Authority of India Limited to establish a 50:50 joint venture company for coal mining in India. Also, Tata Steel has bought 19.9% stake in New Millennium Capital Corporation, Canada for iron ore mining. Exploration of opportunities in titanium dioxide business in Tamil Nadu, ferrochrome plant in South Africa and setting up of a deep-sea port in coastal Orissa are integral to the Growth and Globalisation objective of Tata Steel. Tata Steels vision is to be the global steel industry benchmark for Value Creation and Corporate Citizenship. Tata Steel India is the first integrated steel company in the world, outside Japan, to be awarded the Deming Application Prize 2008 for excellence in Total Quality Management.

Capital Structure Analysis for five years

Financial Year 2005-2006

The year that was  Ranked Worlds Best Steel Maker - World Steel Dynamics  Consolidated gross turnover crosses Rs. 22,000 crores  Acquisition of Millennium Steel, Thailand  1 MTPA expansion completed. 1.8 MTPA expansion launched  Reduction in domestic clean coal ash content by 1.2 % enables  lower usage of imported coal from 46% in FY05 to 32% in FY06,  resulting in an overall reduction in cost of manufacturing coke.  Standard and Poors upgrades Tata Steel to BBB- two notches  above Indias sovereign rating  Equity participation in coal mines - Australia steeljunction - an innovative initiative  Tata Structura launched

Other highlights (Consolidated)

2005-2006 2004-2005
2005-2006 2004-2005 Turnover Rs. 22518.75 crores Rs. 3734.62 crores 0.31 44% Rs. 2536 crores Rs. 17596.96 crores Rs. 3603.26 crores 0.57 62% Rs. 2448 crores Rs. 65.27

Profit After Tax

Net Debt/Equity Return on Equity EVA spread

Earnings per Share

Rs. 67.62

Financial Year 2006-2007

In the last few years, the Company has been steadily consolidating its financial position. No major borrowings were undertaken and the entire funds for capital expenditure were met from internal generation. Surplus cash reserves were temporarily invested in money market mutual funds to facilitate liquidity. The Company was, therefore, in a strong position to leverage its balance sheet to meet the substantial funds required for the acquisition of Corus. The Company proposes to infuse USD 4.1 billion as equity to part fi nance the transaction. The equity will comprise of USD 700 million from internal generation, USD 500 million of external commercial borrowings, USD 640 million from the preferential issues of equity shares to Tata Sons Ltd. in 2006-07 and 2007-08, USD 862 million from a rights issue of equity shares to the shareholders, USD 1000 million from a rights issue of

convertible preference shares and about USD 500 million from a foreign issue of equity-related instrument.

Secured and unsecured loans increased by Rs. 7,129.18 crores from Rs. 2,516.15 crores as on 31st March, 2006 to Rs. 9,645.33 crores as on 31st March, 2007 due to new syndicate foreign currency loans drawn for funding the acquisition of Corus Group plc. The Company has drawn foreign currency syndicate loans of Rs. 7,225 crores (USD 1.65 billion) during the year as per details given below: 1. JPY Syndicated External Commercial Borrowings of USD 495million equivalent: Rs. 2,162.66 crores (unsecured loan) 2. External Commercial Borrowings of USD 5 million equivalent: Rs. 21.77 crores (unsecured loan) 3. JPY Syndicated External Commercial Borrowings of USD 750 million equivalent: Rs. 3,298.88 crores (unsecured loan) 4. International Finance Corporation, Washington A Loan USD 100 million equivalent: Rs. 435.35 crores (secured loan)

5. International Finance Corporation, Washington B Loan USD 300 million equivalent: Rs. 1,306.05 crores (secured loan).

Financial Year 2007-2008

Finance
During FY 2007-08, the financing structure of the Corus transaction has been reorganised to achieve fi scal unity in the Netherlands and consequent tax effi ciencies. The Corus businesses in UK and Netherlands are now organised under fully owned subsidiaries of Tata Steel Netherlands B.V., which in turn is an indirectly fully owned subsidiary of Tata Steel Limited. By the close of April 2008, the financing for the Corus acquisition has been completed with all the recourse bridge funding contracted for the acquisition having been paid off through a mix of debt, equity and internal accruals and the non-recourse funding syndicated during the year. In September 2007, the Company issued USD 0.875 billion of 1% Foreign Currency Convertible Alternative Reference Securities(CARS). Between September 4, 2011 and August 6, 2012, each security is convertible at the option of holder of the security, at a conversion price of Rs. 758.10 into a Qualifying Security issued by the Company. The

Company must redeem all outstanding CARS at 123.349% of their principal amount together with accrued and unpaid interest no later than September 5, 2012. The Company raised an amount of Rs. 9121 crores through a Rights and Cumulative Compulsorily Convertible Preference Share Issue and Rs. 25 billion through a long term loan. The syndication of the GBP 3.67 billion senior facility consisting of multiple tranches of term loans and a GBP 0.5 Billion five year revolving credit facility, secured by the assets of Corus was

successfully closed in December 2007 by which time, a large number of banks as well as institutions had come into the transaction. The deal was widely recognised as a landmark deal and won numerous awards and recognition from fi nancial journals. Tata Steel also privately placed Non-Convertible Debentures totaling upto Rs. 2,000 crores in May 2008. The deemed date of allotment of these debentures was 7th May, 2008 and they

consist of 3 series: 3 year floating (MIBOR-linked) notes (Rs. 1,090 crores), 7 year fixed rate notes (Rs. 620 crores) and 3 year fixed rate notes (Rs. 290 crores). These funds may be used by the company for various corporate needs.

Rights Issues
During the year under review, the Company allotted the Cumulative Convertible Preference Shares (CCPS) and Ordinary Shares on a Rights basis to the shareholders of the Company as under: (i) 121,611,464 Ordinary Shares of Rs.10 each at a premium of Rs.290 per share in the ratio of 1:5, aggregating to Rs. 3,648 crores. (ii) 547,251,605 2% Convertible Cumulative Preference Shares (CCPS) of Rs. 100 each at an issue price of Rs. 100 each, in the ratio of 9:10, aggregating to Rs. 5,473 crores. As per the terms of the issue, six CCPS of Rs.100 each are compulsorily and automatically convertible on 1st September, 2009,

into one Ordinary Share of Rs. 10 each, at a premium of Rs. 590 per share. The proceeds of the Rights Issue have been utilised to repay the short term Bridge Loan availed by the Company from the State Bank of India.

The increases in the total debts by Rs. 8,376 crores from a level of Rs. 9,645 crores as on 31st March, 2007 to Rs. 18,022 crores as on 31st March, 2008 were mainly due to 1% Convertible Alternate Reference Securities USD 875 million, short term bridge loans from State Bank of India and IDBI used for funding the Corus deal.

The loans have gone up from Rs. 24,926 crores as on 31st March, 2007 to Rs. 53,593 crores as on 31st March, 2008 mainly due to inclusion of the Secured loans of Corus from Banks and Financial Institutions. The increase in the loan balances of Tata Steels Indian operations represent 1% Convertible Alternate Reference Securities USD 875 million, short-term bridge loans from State Bank of India and IDBI used for funding the Corus deal.

Financial Year 2008-2009

The increase in net debt by Rs. 2,095 crore represents an increase in the gross debt by Rs. 6,276 crore due to the issue of non-convertible debentures and term loans taken from Banks, by Tata Steel India, partly compensated by repayment of external debts at Tata Steel Europe. The increase in gross debts was offset by an increase in current investments (in growth funds) by Rs. 2,264 crore and an increase in the cash and bank balance by Rs. 1,917 crore.

Financial Year 2009-2010

Net debt as on 31st March, 2010 at Rs. 20,286 crores was lower by Rs. 1,800 crores against 31st March, 2009. During the current fiscal year, the secured and unsecured loans decreased by Rs. 1,654 crores and Rs. 53 crores respectively as compared to the balances as on 31st March, 2009 due to repayments of term loans and other repayments partly offset by issue of NonConvertible Debentures, fresh term loans and other drawals. Current investment was lower by Rs. 1,550 crores which was offset by increase of Rs.1,644 crores in the cash & bank balances.

Bibliography
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Financial Management, I M Pandey

Financial Management, R K Sharma & Shashi Gupta www.capitaline.com http://www.tatasteel.com/investors/performance/an nual-report.asp

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