Tata Motors, India’s largest truck maker, has offered to convert bonds worth $431 million into shares about a year before they mature. The company’s share price fell 3 per cent because the conversion would dilute the company’s share capital by 4.3 per cent.
Tata Motors’ invitation covers ¥11.8 billion ($131 million) of zero-coupon bond due March 2011 and $300 million of 1 per cent bonds due in April 2011.
“Seeing the high debt on the company’s books early conversion is good as it makes the capital structure favourable,” said Vaishali Jajoo, an analyst with Mumbai-based Angel Broking.
The bond holders have to submit applications selecting the price options and conversion ratios offered by the company. At the end of the auction the managers to the invitation will decide on the conversion and determine the final price for conversion of the bonds.
Tata Motors acquired Jaguar and Land Rover brands from Ford Motor Company for $2.5 billion in 2008. The company had a consolidated debt of Rs 23,100 crore at the end of last December. It has also been reducing its debt, also through the sale of shares in group firms. Last year, it raised $750 million selling global depository receipts and convertible bonds.
The company reported consolidated net income of Rs 650 crore in the quarter ended December, its first profit since the acquisition.
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Several companies in the recent past have opted to converted bonds to reduce debt costs. For instance, 185 Indian companies issued Foreign Currency Convertible Bonds (FCCBs) worth $12.7 billion during the bull run of 2004-2007 and these are due to mature in the next two to three years.
These companies face considerable redemption pressure because most of their stocks are trading below the conversion price. The global economic meltdown brought the Sensex, the benchmark index of the Bombay Stock Exchange, down to 8,160 on March 9 last year from a high of 21,206 in the previous year.
This had prompted the Reserve Bank of India to open a one-year window in december 2008 to allow companies to buy back their FCCBs. In all, 33 Indian companies bought back bonds worth $643 million using the special window, either by raising fresh funds or dipping into reserves. The window was closed this year.
In the current financial year, the Sensex has risen 80 per cent to 1,7451 on Tuesday. About 20 companies have already converted FCCBs worth Rs 1.500 crore since January 1, benefiting from the rise in stock markets.