Country’s largest truckmaker, Tata Motors Ltd, has asked shareholders for permission to extend its borrowing limit by 75% to Rs20,000 crore, as it seeks to build more factories and expand products even as borrowing costs have risen, credit has become tighter, and vehicle sales have slowed.
Tata Motors had a borrowing limit of Rs12,000 crore and just two weeks ago the company said it plans to raise Rs7,200 crore through three rights issues to pay part of a stop-gap $3 billion (Rs12,870 crore) loan it took to buy British brands Land Rover and Jaguar from Ford Motor Co.
At the time, it also said it plans to raise up to $600 million in the overseas market to settle this loan which it has taken at an average cost of 110 basis points over the London interbank offer rate (Libor, a benchmark rate), according to a banker who was involved in arranging the debt. On Tuesday, Tata said its overseas borrowing limit has been set at $1 billion.
A credit crisis resulting in record write-downs in the US has already resulted in tighter and more expensive borrowing in global markets. Tata’s purchase of the two brands that make gas-guzzlers comes amid this and also as the world braces for a greater oil-shock from runaway prices of crude oil.
Land Rover makes sports utility vehicles and competes with rivals such as Hummer, the US brand which runs the risk of being pulled out of the market with the maker, General Motors Ltd, saying it’s looking at what to do with the vehicle as Americans opt for more fuel-efficient forms of private transport.
In a notice sent to shareholders on Tuesday, Tata Motors said it needed to increase the borrowing limit to “meet capital expenditure requirements and for additional working capital needs, as also to provide for the issue of any debt/debt-related instrument.”
A spokesperson for the company said the rights issue and the $600 million borrowing should be enough to service the stop-gap loan without specifying details. Tata Motors also asked shareholders to allow the company to mortgage or pledge its assets to raise debt from the market. This is not for the first time that the company has sought shareholder approval for securitizing its assets and analysts say this is a regular practice among companies seeking to raise debt.
“The company has major growth plans for expanding its product range and presence in the domestic and global markets in commercial and passenger vehicles, including through strategic alliances and acquisition opportunities,” it explained in the note to shareholders.
At its earnings announcement, Tata Motors’ chief financial officer C. Ramakrishnan said that the company would invest Rs10,000 crore over the next four-five years in building new factories and developing new vehicles.