Global Rating agency Moody's Investors Service has announced it has placed the Ba1 corporate family rating of Tata Motors Ltd (TML) on review for a possible downgrade.The action follows the announcement by Ford Motor Company (Ford which has a rating-B3/Stable) naming TML as the preferred buyer for Ford's luxury Jaguar and Land Rover car brands after several months of discussion.TML will now be entering a period of more focused and detailed negotiations with Ford and hopes to reach an agreement in the forthcoming weeks. Moody's believes TML has a keen interest in the two brands."Should TML proceed with the transaction and acquire these two businesses, it will face considerable execution and integration challenges," Elizabeth Allen, VP & senior analyst, Moody's, said."Furthermore, while TML enjoys a strong position primarily in the low to mid-end vehicle segments in India and in some developing markets, the acquisition of the Jaguar and Land Rover brands will expose the company to the luxury product category as well as to broader geographies; these are areas in which TML lacks experience. Moody's therefore believes such a transaction would materially increase the business risk profile of TML," Allen added.On the other hand, Moody's acknowledges that in the long term this potential acquisition could elevate TML from a major Indian player into a global automobile manufacturer, enlarge its operating scale, improve its technology base and broaden its product range. Nonetheless, the challenges in the near to medium term are substantial.The review will focus on the funding structure of the potential transaction, the potential transaction's overall impact on TML's operating and financial profile including the company's plans to address the potential integration challenges and Moody's assessment of the substantial funding arrangements involved.Should TML decide not to proceed with the transaction, the rating outlook is likely to revert to stable.
