Tata Steel trims overseas debt to 18% by FY26, cuts FX risk

Why Tata Steel is onshoring debt now

Tata Steel is stepping up its balance sheet clean-up by planning to repay much of its overseas debt over the next two years using internal cash flows, according to a company spokesperson. The stated priority is to strengthen the balance sheet while pursuing calibrated growth. For investors, the key takeaway is the continuing shift away from foreign-currency liabilities that can inflate reported debt when the rupee weakens.

The company’s overseas debt stood at ₹16,629 crore at the end of FY26, which is 18% of total borrowings of ₹92,382 crore, the spokesperson told Mint. This overseas number includes both term debt and working capital borrowings across Tata Steel’s businesses. Until FY21, around half of the company’s borrowings were denominated in foreign currencies, which made debt metrics more sensitive to exchange-rate moves.

A management commentary also described a broader deleveraging effort after the pandemic, including debt reduction of about ₹40,000 crore in FY21 and FY22. In the same remarks, gross debt was cited at about ₹92,382 crore and net debt at about ₹80,100 crore. The emphasis across these disclosures is consistent: reduce currency-linked leverage and protect financial flexibility.

FY26 overseas debt position and the 18% share

Tata Steel’s overseas debt level of ₹16,629 crore at the end of FY26 is now a smaller share of the capital structure compared with FY21. The company said the overseas share fell from roughly 50% in FY21 to 18% by FY26.

In its FY26 annual report, CEO TV Narendran and CFO Koushik Chatterjee said the group has focused on onshoring overseas debt to mitigate rupee depreciation risks. They also said that without this proactive onshoring, the company’s gross debt would have been about ₹12,500 crore higher due to rupee depreciation alone.

Another management update added colour on how currency moves can obscure underlying deleveraging. It said the company prepaid around ₹9,100 crore of debt from internal cash during the year, but the overseas debt valuation shifted to ₹94 per dollar from ₹88 a year earlier, contributing about ₹4,200 crore. It also referred to an increase in lease liabilities of about ₹2,500 crore.

Bonds maturing in January 2028 and the refinance stance

A key piece of the overseas debt stack is bonds issued through the subsidiary Abja Investment Company, which mature in January 2028. Tata Steel said it does not plan to refinance this debt and will repay it at maturity.

After that repayment, the spokesperson said the only overseas borrowings remaining on the books will be working capital facilities supporting international operations. The company did not disclose the size of these working capital loans.

This sequencing matters because it clarifies how quickly foreign-currency exposure can fall further. Management also indicated that by FY28, the overseas debt share will go down further when the overseas dollar bonds are repaid.

Deleveraging metrics: net debt, ratios, and ratings focus

Alongside the debt mix change, Tata Steel highlighted leverage ratios as a sign of improved resilience. A management note referenced consolidated net debt compressed to $1.20 billion and said overseas debt exposure reduced from 50% to 18%. It also cited an estimated 1.43 billion in exchange translation losses saved and said net debt to IBIT reduced to 2.3x.

Separately, Tata Steel reported a robust performance for the third quarter of FY2026 with consolidated EBITDA increasing 31% year-on-year. The company reported revenue of ₹57,000 crore for the quarter, EBITDA of ₹8,309 crore with a 15% margin, and net debt reduced to ₹81,834 crore. It also said its net debt to EBITDA ratio was about 2.6x, within a stated range of around 3x for the cycle.

These disclosures together underline the same direction of travel: reduce leverage, reduce currency-driven volatility in reported debt, and preserve investment-grade positioning. The company also acknowledged that European subsidiaries remain under pressure, even as the group targets a stronger consolidated profile.

India growth plan: sales and Kalinganagar capacity

Tata Steel aims for a nearly 9% increase in Indian steel sales in the current fiscal year, supported by expanded capacity at its Kalinganagar facility. Growth in India remains central to its capital allocation plan, even as the company prioritises debt reduction.

Capital expenditure guidance appears in multiple company updates. One disclosure said Tata Steel plans capex of about ₹15,000 crore for FY2025-26, with nearly 75% allocated in India. Another management commentary referred to spending approximately ₹16,000 crore in the next financial year, with most of it linked to the completion of the Kalinganagar expansion.

Europe operations: cash focus and restructuring actions

In Europe, the company’s messaging has been two-track: tight cash management alongside restructuring. One management update said the Netherlands operations have been focused on cash flow management and are effectively net debt-free despite challenging operating and regulatory conditions.

The UK business remains a focus area for cost actions. Tata Steel said it is proceeding with restructuring and a transition to greener steelmaking, including the closure of one blast furnace by the end of June and another closure by September, as described in a management commentary.

On cost targets, Tata Steel disclosed a plan to pursue ₹11,500 crore in cost savings during FY2025-26, with ₹4,000 crore expected from India through operating KPI improvements, workforce productivity, and supply chain efficiency. The UK business aims to reduce fixed costs from £995 million in FY2023-24 to £540 million in FY2025-26, while Tata Steel Nederland targets €500 million in savings in FY2025-26 through volume growth and operational improvements.

Funding actions: ECB and term loans

Tata Steel also raised fresh funding alongside its deleveraging narrative. The company secured a $150 million External Commercial Borrowing (ECB) and raised term loans of about ₹10,000 crore.

As of March 31, 2025, it reported net debt of ₹82,579 crore with net debt to EBITDA at 3.2x, after deleveraging of about ₹6,200 crore in the last six months of FY2024-25. The company said it remains committed to further deleveraging based on cashflows.

Key numbers at a glance

Market impact: what the debt shift changes for investors

For shareholders and bondholders, a lower share of foreign-currency debt reduces the risk of headline leverage worsening purely because the rupee weakens. Tata Steel’s own disclosure that gross debt could have been about ₹12,500 crore higher without onshoring puts a concrete number on that benefit.

The company’s plan to repay overseas bonds at maturity, with no refinancing, signals a preference for simplifying the liability structure. It also helps investors track underlying deleveraging more cleanly, particularly when currency revaluation and lease liabilities can mask cash-led debt repayments in reported numbers.

At the same time, the disclosures show the group is still balancing competing demands: capex for India growth, restructuring costs in the UK, and cash discipline across Europe. The results and guidance indicate a strategy that prioritises maintaining a strong balance sheet while continuing investment in India.

Why this story matters

Tata Steel’s debt actions are not just about reducing borrowings. They are also about reducing volatility in reported metrics, which can influence credit perception and financial flexibility during downcycles. A shift from around 50% foreign-currency debt in FY21 to 18% by FY26 is a structural change, not a one-off.

The company has also provided multiple leverage anchors across updates, including net debt to IBIT at 2.3x in one commentary and net debt to EBITDA at 2.6x for Q3 FY2026. While these are different references, both highlight a focus on bringing leverage into a tighter range as the company funds capex and manages Europe.

Conclusion

Tata Steel’s plan to repay much of its overseas debt over the next two years, combined with a fall in foreign-currency borrowings to 18% of total debt by FY26, reflects a clear push to limit rupee depreciation risk and strengthen the balance sheet. The next milestone to watch is the January 2028 maturity of overseas bonds issued via Abja Investment Company, which the company has said it will repay without refinancing, after which overseas borrowings are expected to be limited mainly to working capital facilities for international operations.