It’s a multi-billion dollar question. Will the Tatas’ balance sheet take the strain if the Corus deal cost it way over USD 10 billion? And would it be worth it? CNBC-TV18 figures it out.

A year ago as the Tatas unveiled ambitious plans in Jharkhand, Orissa and Chattisgarh, analysts were worried about whether its balance sheet would be able to bear the strain of over Rs 80,000 crore.

Now, as Tata Steel prepares to bid for Corus at USD 10.4 billion, the strain on the balance sheet will increase.

Tata Steel has free reserves of Rs 8,900 crore and its debt equity ratio is a very healthy 0.3. By global standards, there’s a lot of scope for leverage, but the Tatas have always prided themselves on maintaining the lowest debt-equity ratios.

Here’s why the Corus deal might have to go the Tetley way, 100% of the Corus equity would be put into a Special Purpose Vehicle shared between the Tata Steel-Tata Sons combine and three bankers, Deutsche, Standard Chartered and Citibank.

This will mean Tata Steel will have to pick up debt of about USD 2 billion. This will see its debt-equity ratio at 1:1, which is still very respectable.

So at current valuations of 580 pence per share or USD 10.4 billion, there’s no cause for concern. But the problem is that if Tata Steel were to make an offer for Corus experts believe it could spur Russian companies like Severstal and Eraz or also Brazilian company CSN to make counter offers.

And this could push up the price like it did in the famous Arcelor-Mittal deal, in which Mittal ended up paying 40 percent more than its initial offer for Arcelor.

Going by that sort of valuation the Tatas may have to shell out USD 15.9 billion or 888 pence/share. And that’s what analysts are worried about.

Would that sort of valuation justify the fact that it would catapult the Tata Steel-Corus combine output to 22 million tonne of steel a year? That would be behind the 110 million tonne Arcelor Mittal and the 30 million tonne of Nippon Steel, JFE and Posco.

That’s the USD 15 billion question the Tatas will have to grapple with.