Mumbai: Faced with onerous expenses, Tata Motors Ltd has hit upon a novel fund in raising plan. The country’s biggest automobile maker is looking to come out with India’s first ever guaranteed non-convertible debenture (NCD) issue, and is in talks with State Bank of India (SBI), according to people familiar with the development.
If the talks are successful, SBI will stand guarantee to Tata Motors’ planned Rs2,000 crore NCD issue, allowing the company to offer a lower coupon rate. Without a bank guarantee, analysts say the coupon rate could be as high as 11% given that Tata Motors does not have an AAA credit rating given to top-rated borrowers.
The issue of NCDs, with a tenure of five-seven years, is likely within a couple of months, according to the people close to the matter, who didn’t want to be named. Mutual funds and insurance companies are likely to subscribe to the issue, the people say, as it may become more attractive with SBI backing.
Experts say that since such a product has never been available before, the terms and conditions of the issue will be known only when the product is officially announced, and no call can be taken at this point of time on the attractiveness of the issue, or any risk it may entail.
Top officials at Tata Motors, when contacted by CNBC-TV18, refused to either confirm or deny both the likelihood of a bank-guaranteed NCD issue and that talks were under way with SBI.