By Prashant Mehra

MUMBAI, Nov 12 (Reuters) - India's Tata Steel, the world's No. 8 steelmaker, on Thursday approved a new convertible bonds offer in exchange for an existing $875 million securities, in an effort to reduce costs and ease repayment obligations.

Tata Steel said the new foreign currency convertible bonds will have an yield-to-maturity of 4.5 percent and will mature in November 2014.

The bonds are convertible into shares at 605.53 rupees each, a 15 percent to the closing price on Wednesday at a fixed 46.36 rupees to the dollar exchange rate.

The existing convertible alternative reference securities had a yield-to-maturity of 5.15 percent and were due in 2012. The securities were convertible at 733 rupees, and had a redemption premium of 23 percent in case they were not converted.

'I think the company was not confident of its stock reaching that price, which means it would face a big redemption in a single year,' said Pawan Burde, sector analyst at Mumbai-based PINC Research.

'This probably reflects their concerns over growth amid the downturn in the global steel industry,' he said.

Shares in the company, worth $10 billion, fell as much as much as 3.5 percent on growth prospects. At 10:50 a.m. (0520 GMT), they were trading down 3.3 percent at 509.90 rupees.

Tata Steel said it was making the exchange offer to lengthen its debt maturity profile, lowering cost and potentially reducing future repayment obligations.

'Basically, it gives us option to extend the repayment schedule by two years,' said a company official, who declined to be named as he was not authorised to speak to the media.

In Hong Kong, sources familiar with the matter told Reuters Tata Steel expects conversion for at least $400 million worth of securities.

Standard Chartered Bank, ABN AMRO Bank, Citigroup and Calyon are the managers to the exchange offering, Tata Steel said.

(Additional reporting by Narayanan Somasundaram in Hong Kong and Ami Shah in Mumbai; Editing by Ranjit Gangadharan)

((prashant.mehra@thomsonreuters.com; +91 22 6636 9029; Reuters Messaging: prashant.mehra.reuters.com@reuters.net)) Keywords: TATASTEEL/DEBT

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