Mumbai: India’s largest commercial vehicle maker Tata Motors Ltd on Tuesday offered to convert $431 million (Rs1,965.4 crore) of bonds into shares about a year ahead of schedule to reduce debt on its books.
Improvement step: A Tata Motors plant in Pune. The offer covers 11.8 billion yen of zero-coupon notes and $300 million of 1% bonds. Santosh Verma / Bloomberg
The offer, valid through 29 March, gives bondholders an enhanced conversion ratio, Tata Motors said in a statement.
It will cover 11.8 billion yen ($131 million) of zero-coupon notes due on March 2011 and $300 million of 1% bonds due in April 2011. Bondholders will have to submit applications selecting the price options and conversion ratios offered by the company.
At the end of the December quarter, Tata Motors, India’s largest auto maker by revenue, had consolidated net debt of Rs30,600 crore.
Analysts say that while the move to advance the conversion of these bonds will help the company improve its capital structure and reduce debt faster, it has its downsides.
The yen-denominated notes that have a higher valuation will lead to a greater dilution in the equity as the company will have to pay a higher premium, said Kaushal Maroo, analyst at Religare Markets Capital Ltd, adding the dilution would likely be 0.5%, or half a percentage point, higher than his earlier estimate of 4%.
“Having said that, a lot will depend on the number of bondholders who opt for it,” he said.
Another analyst from a foreign brokerage firm put the estimated dilution at 7-8% or “even higher”, up from his firm’s earlier projection of 5%. He declined to be named, citing company policy on speaking with the media.
Maroo said the move will reduce Tata Motors’ stand-alone debt from Rs18,700 crore to Rs1,700 crore, as the bonds had also been raised on its stand-alone books.
Tata Motors in October repaid money it had borrowed to buy Jaguar Land Rover (JLR) by raising $750 million through selling securities. The sale comprised $375 million of global depository receipts (GDRs) and an equal amount in convertible bonds.
The company has reduced its debt-to-equity ratio from 6.03 in the quarter ended September 2009 to 4.29 in the three months to December.
For the December quarter, JLR reported its first quarterly profit since the acquisition, helping Tata Motors post a consolidated profit of Rs650 crore for the period, compared with a loss in the same period the previous fiscal year.
Tata Motors’ shares on Tuesday fell 2.76% to close at Rs739.05 each on the Bombay Stock Exchange. The benchmark Sensex index rose 0.23% to 17,451.02 points.
Bloomberg contributed to the story.