Hong Kong: India’s biggest truckmaker, Tata Motors Ltd, plans to borrow $3 billion (Rs12,090 crore) from nine banks to finance the purchase of Ford Motor Co.’s Jaguar and Land Rover luxury car brands, according to three people with direct knowledge of the deal.
The company plans to raise the money from banks including Citigroup Inc. and JPMorgan Chase and Co., said the people, who declined to be identified because the information isn’t public.
Overseas pitch: A view of the Jaguar and Land Rover brand logos at the Geneva Motor Show. A successful acquisition of the UK car brands is expected to help the Tata group expand its overseas reach.
A successful acquisition of the UK car brands will expand the Tata group’s overseas reach after the purchase of Corus Group Plc. for $13 billion last year, the biggest ever by an Indian company. Taking out a bank loan as opposed to selling bonds is cheaper for Tata Motors after the credit default swaps linked to its debt rose to a record on concerns about a ratings downgrade.
“It may be too big a deal for Tata Motors to swallow,” said Mumbai-based Arvind Jain, an analyst at Religare Securities Ltd. “Tata won’t be able to get outsourcing from India and is unlikely to be able to introduce Jaguar or Land Rover to the Indian market at least in the next two to three years. On top of that, pension liabilities from the acquisition could be huge.”
Tata Motors is also talking to Bank of Tokyo Mitsubishi UFJ Ltd, BNP Paribas SA, Calyon, ING Groep NV, Mizuho Financial Group Inc., Standard Chartered Plc. and State Bank of India to arrange the loan, according to the people.
Tata Motors shares gained 0.1% to Rs702.65 in Mumbai on Wednesday. Debasis Ray, a spokesman for Mumbai-based Tata Motors, declined to comment. Shares of India’s largest truckmaker have declined 11% after Ford announced Tata Motors as the preferred bidder on 3 January.
Tata Motors will pay less than 2 percentage points more than the London interbank offered rate (Libor) as interest and fee for the loan, the people said. About $2.5 billion will fund the cost of the acquisition and the rest will be used for working capital, the people said. Three-month Libor, a benchmark for corporate borrowing, was set at 3.01% on Tuesday.
Standard and Poor’s in January said it may downgrade Tata Motors’ credit ratings because the company may struggle to integrate the UK units while increasing its debt burden. Tata’s debt is rated BB+, one level below investment grade.
Credit-default swaps on Tata Motors fell 5 basis points to 475 basis points at 4.09pm on Wednesday in Hong Kong, according to Citigroup prices. That means it costs $475,000 a year to protect $10 million of Tata’s debt from default for five years. A basis point is 0.01 percentage point.
Tata Motors has Rs3,890 crore of bonds and loans outstanding, data compiled by Bloomberg show.
Global sale of non-investment-grade bonds plunged 76% to $8.8 billion this year as investors shun all but government debt, perceived to be the safest assets, data compiled by Bloomberg show.
Tata Motors’ $490 million zero-coupon convertible bonds maturing in 2012 now trade at 100.6% of face value, down from 106.3% on 2 January, according to prices from Lehman Brothers Holdings Inc.
Tata Motors, which in January unveiled the so-called Rs1 lakh car, is seeking to acquire engineering technology to compete with overseas automakers led by General Motors Corp. that are spending $6 billion to build plants and develop models in India.
An overseas buy would give the Indian company access to engines and design technology for cars and sport utility vehicles that Tata Motors could use in the local market.
Ford, the world’s third largest automaker, is selling the UK brands to focus on North American operations after losses of $2.72 billion last year and a record $12.6 billion deficit in 2006.