Divestment to help fund buy

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Thursday , March 27, 2008 at 0010 hrs Tata Motors will bankroll its JLR acquisition with a bridge loan of $3 billion, which will later be replaced by long-term debt and/or equity. The company is also exploring ways to divest a part of its holdings in some subsidiaries to help fund the transaction. Confirmed Tata Motors CFO C Ramakrishnan, “We are looking at unlocking some value from our subsidiaries as well.”

Among the direct holdings that Tata Motors has in other group companies is a 4.29% (2.61 crore share) stake in Tata Steel. This translates into a market value of a hefty Rs 1,717 crore. Tata Sons, in turn, holds nearly 22% in Tata Motors. Utilising this amount could be another option the group may choose to explore, though there is no confirmation of this at the moment. This 22% stake is valued at over Rs 5,700 crore.

Declining to disclose the interest rates or the payout for the funding deal, Ramakrishnan said the terms were “appropriate and competitive, given the market conditions”. He said JLR would be 100% owned by Tata Motors after the deal was complete, which also meant that it would operate as a Tata Motors subsidiary and that its assets would not sit on the books of the parent company.

Ramakrishnan also said that the deal was at a share purchase agreement stage and, hence, he was not in a position to divulge details of JLR’s financials. However, he emphasised that the combined entity was profitable, with a turnover upwards of $14 billion. “We have already committed financing from our banks which, along with our existing cash reserves, is sufficient,” he said.

Earlier, Tata Motors had mandated the country’s largest bank, State Bank of India, to raise $3 billion through syndication to fund the deal. The money is being raised at a finer rate of 4.5%, according to sources.

Sources said SBI plans to raise the amount by the second half of April to enable Tata Motors to complete the acquisition soon. Financers in the consortium will normally receive commissions in the range of 0.50-1% of the deal amount, but this could vary according to the period of funding and the amount to be raised, the source said.