Mumbai: Tata Motors Ltd will complete the final stage of the rollover of a bridge loan by early next week, a company spokesman told Mint on Wednesday evening.
Earlier in the day, reports of a plan to refinance the bridge loan pleased investors, who rushed to buy the stock on Wednesday, pushing its price up by 22.55% during the day. The reaction from equity analysts covering the company was more tepid, because of niggling worries that though the refinance deal would help the firm overcome its immediate liquidity problem, it would also raise interest costs.
Tata Motors has already diluted its equity base with a rights issue in October in which the company raised funds to partly repay the bridge loan.
The shares of India’s largest auto maker by revenue surged 19.12% at close of market hours, after ratings company Crisil Ltd rated its Rs4,200 crore bond issue as AAA, the highest rating carrying minimal risk of default.
According to two bankers, both of whom are part of a syndicate that is refinancing the loan, Tata Motors is close to repaying part of a $3 billion (Rs14,310 crore) loan and refinancing the rest.
It had taken the loan in March 2008 to pay for the purchase of Jaguar and Land Rover (JLR) luxury car units of Ford Motor Co.
At that time, a syndicate of State Bank of India (SBI), Citigroup, JPMorgan Chase and Co., Mizuho Corporate Bank Ltd, Mitsubishi UFJ Financial Group, ING Financial Group, BNP Paribas and Standard Chartered Bank Ltd lent the firm at 175 basis points over Libor (London interbank offered rate). One basis point is one-hundredth of a percentage point. It is due to be repaid on 2 June.
After paying back about $1 billion through a rights issue and stake sales in some units, the firm had floated a Rs4,200 crore bonds issue, which has got the guarantee of SBI, India’s largest bank by assets.
SBI has distributed this among 10 other banks, said one of bankers mentioned earlier. SBI itself is lending around 500 crore.
Late in the evening, Tata Motors issued a statement saying that it had closed the bond issue.
The Rs4,200 crore bond issue has been divided into four tranches maturing in two years, four years, five years and seven years. The Rs1,250 crore seven-year tranche has been picked up by Life Insurance Corp. of India.
The rest, about $1.2 billion, is being refinanced through a consortium of 12 banks, including Citi, SBI, BNP Paribas and Bank of Mitsubishi, at 500 basis points over Libor.
A back-of-the-envelope calculation, assuming that the 12-month US dollar Libor as benchmark, shows that Tata Motors would pay an interest of around 658 basis points on the $1.2 billion loan, against 423 basis points for the previous loan.
Mint couldn’t ascertain the exact details of the loan agreements and the extent of the transaction costs that would be added to such deals.
“This refinance is the single largest positive for the company,” said Surjit Arora, an analyst from Prabhudas Lilladher Securities Ltd. According to him, it has demonstrated its refinancing ability.
‘This could be potentially earnings dilutive,” said Joseph George, an analyst at BNP Paribas Securities Ltd, referring to the higher cost of refinance and the fact that the company has already expanded its shareholder base.
Apart from the $3 billion loan, the firm has Rs19,200 crore short-term debt on its books. Tata Motors has also raised Rs2,200 crore through fixed deposits from the public, even as it collected some Rs2,500 crore through advances for booking the Nano, its low-cost car.
Analysts were a bit guarded to sharing actual earnings per share numbers since they don’t have any information about the current financials of JLR units, for which Tata Motors is continuing talks with the UK government to guarantee a £340 million (Rs2,509 crore) loan. The luxury car makers’ sales fell by 35.2% during October-December.
Global rating agency Standard and Poor’s in a 18 May statement reiterated its so-called “negative watch” ratings for the auto maker.
The five-year credit-default swaps of Tata Motors fell to 905.9 basis points on Wednesday, from 944.7 the previous day. The spread had risen to a high of 3,165 points in April. Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a firm’s ability to repay debt. A decline indicates an improvement in the perception of credit quality while a rise implies a worsening.