Tata Motors to pay back entire JLR loan

Written by fe Bureaus | Mumbai | Updated: Oct 10 2009, 06:16am hrs
Tata Motors on Friday raised $750 million (around Rs 3,480 crore) in a jiffy from the global markets, through an issue of global depository shares and convertible bonds to fully pay up the loan it had taken to buy Jaguar Land Rover. The response from the investors was strong enough to make the company raise the size of the offering by $150 million from the planned $600 million. The offerings were lapped up within an hour.

The company had taken a loan of $3 billion to acquire Jaguar Land Rover in June last year. For quite some time, Tata Motors has been planning to raise funds from the international markets to service the bridge loan it had taken to buy JLR in June last year. But it was forced to postpone the plan because of the global recession. Tata Motors has now joined a growing list of Indian companies that have taken advantage of the recent market buoyancy to raise funds. Excluding Tata Motors, Indian firms have raised almost $17 billion in equity this year so far---about three times what they did during the same period last year.

According to C Ramakrishnan, chief financial officer, Tata Motors, with the $750 million raised on Thursday, the loan taken for the acquisition of JLR would have been fully repaid.

After the issue, the total promoters equity in the company stands at 24.3%. Stock markets reacted sharply to the news with the shares of the company plunging 6.66% to end at Rs 548.30 on Friday on the Bombay Stock Exchange (BSE). But Tata Motors vice-chairman Ravi Kant said Thursdays offer was a significant milestone (for Tata Motors) and bears testimony to the trust reposed in the long-term outlook and performance of the company. The GDRs will be listed in the Luxembourg exchange. Citigroup Global Markets, Credit Suisse and JP Morgan were the book runners for the issue.

Ivan Palacios, assistant vice presidentanalyst, corporate finance group, Moodys Singapore Pte, said, By pre-paying the remaining balance of the JLR bridge loan, Tata Motors will significantly reduce its refinancing risk. In addition, the company will no longer be restricted by the maintenance covenants included in this facility. He, however, added that there has been no immediate positive impact on the companys rating (B3 corporate family rating) given that its leverage levels remain high.

However, Tata Motors overall debt remains bloated. Says, Mahatesh Sabarad, a Mumbai-based analyst with Centrum Broking, Old debt has been swapped by new, and by extending the maturity profile. He added that the companys consolidated debt still stands bloated at Rs 31,600 crore now and he expects the consolidated results for the quarter ending September 30, 2009 to remain in the red.

Of the $3-billion loan, the company has repaid $1.16 billion through a rights issue and divestment proceeds last year. Another $840 million has been repaid through proceeds of the non-convertible rupee debentures in May this year.

Around the same time, the company amended the terms of the bridge finance loan, extending the final maturity of $1 billion by 18 months up to December 2010. Tata Motors bought JLR for $2.3 billion from Ford Motors. It invested $1 billion into JLR since.

During the first quarter ending June 30, 2009, the company posted a consolidated net loss of Rs 328.78 crore after sales at JLR continued to plunge, shaving 52% off the previous quarter sales. Tata Motors has been looking at de-leveraging its accounts through various means, including capital-raising, asset sales and internal accruals. In addition to this capital raising exercise, the company in the current financial year sold a part of its stake in Tata Steel to raise around Rs 455 crore to help pay off a part of the dollar loan taken for JLR.

Further, the company has also secured a loan of 175 million from State Bank of India (SBI), taking the overall aggregate amount of new facilities completed this year to 500 million.

Around 150 million was raised during the last quarter for JLR, of which 50 million pound was raised by Tatas and the remaining 100 million by banks. Last month, Tata Motors said it expect a long-term loan of 340 million from the European Investment Bank for JLR, without any guarantee from the UK government for which it was trying hard.