Tata Motors is likely to monetise investments in its subsidiaries and associate companies to raise cash in order to bring down its high financial gearing substantially, analysts tracking the company told FE.
However, the company has not yet finallised the quantum of money it would raise through monetising investments, they added. Tata Motors has a net debt of Rs 20,000 crore on its book as of quarter ended June 30, 2010. As of FY2010, company had an investment portfolio of Rs 22,337 crore.
Tata Motors had piled up debt on its book mainly for financing its big ticket acquisition of British marque brand Jaguar Land Rover (JLR). The country’s largest vehicle maker had bought JLR from Ford, its American owners, for a consideration of $2.3 billion in March 2008. It was the second big ticket acquisition by Tata group company after Tata Steel took over Corus in a multi-billion dollar deal. Company officials could not be contacted for comments immediately.
Monetising investment, in accountancy parlance, means selling an investment and bringing only the profit from the deal to the profit and loss (P&L) account under the extra ordinary income or exceptional item categories. It is focused on further reducing financial gearing from Rs 20,000 crore as of June 2010 by issuing further equity, internal accruals and monetising investments.
The company plans to raise $500 million through equity issue, although terms are not yet finalised. ?The board is cognisant of the fact that it needs to balance interests of both the promoter and minority shareholders and hence would be raising funds through both differential voting rights (DVR) and normal equity shares? an analyst with a domestic brokerage house, who does want to be named, said.
According to the company’s 2009-10 annual report, Tata Motors has five subsidiaries and more than five dozens step down subsidiaries. The direct subsidiaries of the company are TAL Manufacturing Solution, Tata Technologies, Tata Motors European Technical Centre, and TML Holdings, Singapore. The seven associate companies of Tata Motors include Fiat India Automobiles, Tata Cummins, Tata AutoComp Systems, Tata Precision Industries, Nita Co, Tata Construction Equipment and Automobile Corporation of Goa.
As of the financial year ending March 31, 2010, company had a total investment portfolio valued at Rs 22,336.90 crore, up from Rs 12,968.13 crore as of March 31, 2009. The company had invested Rs 10,575.60 crore in equity and preference shares of TML Holdings (Pte), Singapore, which in turn prepaid the bridge loan taken for acquisition of JLR business. TML Holdings had also redeemed preference shares aggregating to Rs 877.16 crore. The company had already sold part of its investments in Tata Steel and 20% stake in Telco Construction Equipment Co in favour of Hitachi Construction Machinery Ltd (Hitachi) for Rs 1,152.51 crore. Tata Motors has a high debt equity ratio of 4.3:1 as of March 31, 2010.