Mumbai: State Bank of India (SBI) may pick up a 49% stake in Tata Motors Finance Ltd (TMFL), the vehicle financing unit of Tata Motors Ltd, according to two persons familiar with the development.
The deal will allow the country’s largest commercial bank by assets to expand into loans for trucks and buses. The persons familiar declined to be identified as the deal hasn’t been finalized.
Shyam Mani, managing director, TMFL, the country’s largest non-banking finance company, declined to comment.
“Only Tata Motors shall be able to comment on the matter,” he said.
The parent company didn’t confirm or deny the news.
“Tata Motors has said in the past that it is committed to deleveraging the firm through divestments and capital raising at an appropriate time,” spokesman Debasis Ray said in an email response, adding that specifics will be announced as and when “we finalize on a case to case basis”.
SBI officials could not be reached for comment.
SBI has boosted its car loans business, even as other banks have exited the segment, by offering interest rates as low as 8%. In the quarter ended December, its auto loan disbursals rose 46.35% to Rs13,012 crore from the year earlier.
“While they have been very aggressive in car loans, they do not have a presence in the truck and bus finance business,” said an analyst from a domestic brokerage firm, who declined to be named because the deal is still being worked upon. In India, almost 90% of commercial vehicles are bought on credit.
The two sides have been discussing a stake divestment since Tata Motors raised Rs4,200 crore in May through an issue of non-convertible debentures backed by an SBI guarantee, said a person familiar with the development. The firm was planning to sell up to 49% of the finance arm, the same person said.
“It’s a win-win for both Tata Motors and SBI” if the deal goes through, said Abizer Diwanji, head of financial services at global consulting firm KPMG.
While SBI, which doesn’t have experience in commercial vehicle financing, gets access to the seller’s experience and network, TMFL will gain access to capital.
In the nine months to December, TMFL had a book size of Rs6,490 crore. It financed 102,245 passenger cars and trucks, 9.6% fewer than a year earlier, as disbursals fell 18% to Rs4,446 crore in the same period. A divestment will help the group consolidate the vehicle finance business, which currently involves three group firms—TMFL, Tata Capital Ltd and Tata Motors, according to the domestic brokerage analyst quoted earlier.
Considering that the vehicle financing business needs to be well capitalized, it’s only logical to offload a stake to a bank, he said.
While Tata Motors has repaid loans raised for the acquisition of Jaguar and Land Rover from Ford Motor Co. in June 2008 and pared its debt-equity ratio to 1.44 in the quarter ended December 2009 from 1.6 in the quarter ended September 2009, stand-alone debt on its books continues to be as high as Rs19,532 crore, some of which may be retired through money that may accrue from a stake divestment.
“They need funds to write-off the debt, hence it’s only reasonable that they are considering divesting some stake in their vehicle finance arm,” said another analyst, from a foreign brokerage firm, who declined to be named because he is not authorized to speak to the media.
Tata Motors raised a bridge loan of $3 billion (Rs13,924 crore today) to fund the Jaguar and Land Rover purchase. In October, the company raised $375 million through foreign currency convertible bonds to repay the balance of the bridge loan after having repaid most earlier through a mix of stake sales in listed and unlisted group companies, rights offerings and issue of global depository receipts.