Hong Kong: The risk of Tata Motors Ltd, India’s biggest truck maker, defaulting on its bonds rose to a record after the company sought to borrow $3 billion (Rs12,090 crore) to fund the planned purchase of Ford Motor Co.’s Jaguar and Land Rover units.
Credit-default swaps on the Mumbai-based company rose 10 basis points to a record 503 basis points at 3.48pm in Hong Kong (1.18pm India time), according to ABN Amro Holding NV prices. That means it costs $503,000 annually to protect $10 million of Tata Motors’ debt from default for five years.
Tata Motors’s five-year credit-default swaps have more than doubled and its share price fallen 12% since Ford announced the auto maker as the preferred bidder for Jaguar and Land Rover on 3 January. Investors are concerned that Tata may struggle to integrate the UK brands, while also taking on significant amounts of debt and pension liabilities.
“The market is not happy about the deal because there is no synergy in the short term and it’s a burden on Tata’s balance sheet,” said Ashutosh Goel, a Mumbai-based analyst at Edelweiss Capital. Still, “for the long term, Tata is doing the right thing.”
Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company’s ability to repay debt.