Tata Steel UK, an indirect subsidiary of Tata Steel, has got lenders approval to reset the covenants for its 3.7 billion pounds (about $5.6 billion) loan that was taken at the time of the Corus acquisition, the company said in a press release today.

The company had asked the lenders to waive the loan's financial covenants in mid-May pummelled by global economic downturn.

"As part of the agreement reached with banks, testing of the facility's earnings-related covenants will largely be suspended until March 2010 and will then resume with significantly higher flexibility than in the case of original covenants," the company said.

Covenants are typically agreements between a company and its lender, that stipulates the conditions under which the loan is granted and could include restrictions on further borrowing.

The statement also said the interest costs would not increase in the remaining life of the loan and that the revised covenant did not include any additional finance from the lenders or rescheduling of debt servicing commitments.

As part of the package, Tata Steel pledged to repay about 200 million pounds ($304 million) of debt ahead of schedule and inject 425 million pounds into the company in a phased manner.

The waiver, which was led by Citigroup, Royal Bank of Scotland and Standard Chartered, is expected to be signed at the end of next week.

Tata Steel recently came out with a Rs3,000 crore non-convertible debenture (NCD) issue. The proceeds of the NCD would be partly used to meet additional equity infusion into Tata Steel UK and partly prepay some of its debt obligations in Tata Steel. (See: Fitch rates Tata Steel's Rs3,000 crore NCD issue `low-risk').

Early this month  the company said that it is in the process of prepaying £200 million of debt as part of its plan to make its European operations debt-free. (See: Tata Steel UK to prepay £200 million debt). 

Tata Steel's fourth quarter net profit rose 40.9 per cent to Rs1,103.5 crore from Rs783 crore a year ago,while its net income from operations rose 21.4 per cent to Rs4,980 crore from Rs4,100.5 crore.