Mumbai: Tata Motors Ltd, the Indian auto maker that’s buying Ford Motor Co.’s Jaguar and Land Rover units, fell to the lowest in almost two and a half years in Mumbai trading after it said it will sell new shares to pay for the acquisitions.
Tata Motors declined 8.7% to Rs580.05 at the close of trading on the Bombay Stock Exchange on Thursday, taking its year-to-date decline to 22%. The company on Wednesday said it will raise Rs7,200 crore of equity in three rights offerings. It will also raise as much as $600 million (Rs2,568 crore) by selling securities overseas.
Selling new stock to fund the company’s biggest ever acquisition dilutes returns for shareholders of India’s largest maker of trucks and buses. The Mumbai-based company will raise funds outside of India to avoid paying domestic interest rates that are at a six-year high.
“Tata Motors’ performance could face severe near-term pressure,” Balaji Jayaraman, a Mumbai-based analyst of Morgan Stanley, wrote in a note to clients on Thursday. “Tight credit market conditions made raising debt an expensive proposition.” Jayaraman, who on Thursday reiterated an ‘underweight’ rating, had expected the company to raise no more than $1 billion in equity.
Citigroup Inc. has lowered the target price for the company’s stock to Rs791 from Rs914.
Tata Motors had in March agreed to buy the units from Ford for $2.3 billion.
After the acquisition, Standard and Poor’s cut Tata’s credit rating in April. Tata Motors’s net income declined to Rs536 crore in the three months ended 31 March from Rs577 crore a year earlier, according to Bloomberg calculations based on the full-year number reported on Wednesday. Tata Motors’ chief financial officer C. Ramakrishnan declined to comment on fourth quarter earnings. Full-year profits gained at the slowest pace in at least five years as higher interest rates crimped demand in India.