Life & Style | Motoring
Tata seeks $3b to buy Ford units
Tata Motors, India's biggest truckmaker, plans to borrow $3 billion from nine banks to finance the purchase of Ford Motor's Jaguar and Land Rover luxury-car brands, according to three people with direct knowledge of the deal.
- Bloomberg
- Published: 00:53 March 6, 2008
Hong Kong: Tata Motors, India's biggest truckmaker, plans to borrow $3 billion from nine banks to finance the purchase of Ford Motor'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 and JPMorgan Chase & Co., said the people, who declined to be identified because the information isn't public.
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 of a ratings downgrade. Shares of India's largest truckmaker have declined 11 per cent after Ford announced Tata Motors as the preferred bidder on January 3. "It may be too big a deal for Tata Motors to swallow," said Mumbai-based Arvind Jain, an analyst at Religare Securities.
"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, BNP Paribas, Calyon, ING Groep, Mizuho Financial Group, Standard Chartered and State Bank of India to arrange the loan, according to the people.
Tata Motors shares gained 0.1 per cent to Rs702.65 in Mumbai yesterday. Debasis Ray, a spokesman for Mumbai-based Tata Motors, declined to comment.
Tata Motors will pay less than two percentage points more than the London interbank offered rate as interest and fee for the loan, the people said.
Acquisition cost
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 per cent on Tuesday.
Standard & 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 five basis points to 475 basis points at 4.09pm yesterday 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.
The average spread, or extra yield investors demand to buy high-yield debt in Asia instead of US Treasuries, rose by 193 basis points from the end of June to 370 basis points on Tuesday, after reaching 392 basis points on January 23, according to JPMorgan's Asia Credit Index.
Tata Motors is seeking to acquire engineering technology to compete with overseas automakers.
Aftermath: Ready to retain image
Tata Motors would seek to nurture the Jaguar and Land Rover brands it was close to acquiring from Ford Motor, chairman Ratan Tata said.
"These are two iconic brands ... the plan would be to retain the image and not to tamper it in any way," a spokesman said Tata had told reporters on Tuesday at the Geneva auto show, where Tata is displaying its ultra low-cost Nano car.
"[When] the deal is complete our ambition is to nurture and grow these brands through our support," the spokesman cited Tata as saying, adding he did not specify a time-frame for the deal.
- Reuters
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