Tata buys breathing space as it raises $750m

Tata Motors has raised $750m through an international share sale and convertible bond issue, completing the prolonged refinancing of a $3bn bridge loan it raised to fund its acquisition of former Ford marques, Jaguar and Land Rover, last year. The move, in which Tata Motors sold $375m of global depositary shares and the same amount in convertible bonds, buys India’s largest automotive producer some breathing space as it negotiates one of the most difficult periods in its history.Moody’s Investors Service analyst Ivan Palacios said in a research note: “Moody’s expects to see a slow but progressive improvement in [Tata Motors’] performance in the following quarters.”Tata Group, India’s largest conglomerate, bought Jaguar and Land Rover in June last year at the tail end of an overseas acquisition drive in which it also purchased Anglo-Dutch steel producer Corus and a number of other companies. The Jaguar and Land Rover acquisition ran into trouble. The global financial crisis made it difficult for Tata to refinance the bridge loans used for the purchase even as demand for cars plummeted.

With markets picking up, however, Tata Motors has lined up about £500m ($794m) of financing facilities for Jaguar and Land Rover, relieving some of the pressure on its own balance sheet. The group has been forced to pump more than £1.2bn into the two brands to keep them afloat. Tata Motors said on Friday the GDS and convertible bond offering was closed in less than an hour after it received bids for more than double the original amount on offer. “The deal size was upsized from a base $600m to $750m,” it said, adding that the GDSs were sold at a 1.5 per cent discount to Tata Motors’ closing price in Mumbai on Thursday of Rs589.25. The notes, due in 2014, were sold with a coupon of 4 per cent and a conversion premium of 7.5 per cent over the GDS price.

Tata Motors shares ended down 6.6 per cent at Rs548.30 per share on Friday as investors worried about the dilution from the GDS offering. The stock has tripled in value this year, helped by the improvement in the global automotive sector outlook. An analyst with a foreign brokerage in Mumbai said Tata Motors was taking advantage of a benign market to raise money against a future full of uncertainties. The outlook for Jaguar and Land Rover remained difficult, with a turnround in the UK-based businesses likely to take time. “They are making hay while the sun shines,” the analyst said. “They probably should have raised more.” Moody’s also cautioned that Tata Motors’ leverage remained high. “Moody’s expectation that the company will generate negative free cash flow in fiscal year 2009-10 means further leverage reductions will be challenging,” Mr Palacios said. Copyright The Financial Times Limited 2009. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.