Tata Sons may dip into overseas debt markets to meet fund requirements

With Tata Sons, the Tata group’s holding firm, ruling out the possibility of monetising assets, it might tap international debt markets and issue debentures to local banks to meet its fund requirements for financial year 2020-21, say bankers.

The size of the international fund offering has not been decided as yet and it is one of the options on the table, said a banker close to the development. It had previously exercised this option in FY18, when Tata Sons raised $1.5 billion through overseas debt for the first time.

After the company turned private, it was unable to raise funds from insurance companies because of the ceiling prescribed by the insurance regulator. Hence, it is looking at alternatives.

While the company will get around Rs 20,236 crore as dividend from its subsidiaries — led by Tata Consultancy Services — in FY20, bankers say this will not cover the financial obligations of other group companies, like Tata Teleservices, which was asked to pay around Rs 14,000 crore as adjusted gross revenues by the Supreme Court. 

Tata Tele has reported a record accumulated loss of Rs 49,000 crore in FY20, draining a substantial amount of funds from the parent company.

The holding firm will have to make additional equity investments in its two airlines, AirAsia India and Vistara, which are facing tough times because of Covid-19 and the resultant lockdowns. The group’s housing and infrastructure arms would also require about Rs 25,000 crore from the parent, said bankers. A questionnaire sent to Tata Sons did not elicit any immediate response.

The holding company is expected to make additional equity investments in Tata Motors, which is facing financial headwinds both in its domestic and global businesses because of lockdowns. Its British subsidiary, Jaguar Land Rover (JLR), is in a spot because of a spike in yields on its traded bonds, leading to a sharp rise in borrowing cost. JLR bonds are currently trading at a yield of around 10.54 per cent — among the highest in the automotive industry. Analysts say such a high yields will make it tough for the firm to raise funds through the bond market in the current environment. The international brokerage CLSA, expects Tata Motors’ passenger car business, including JLR, to have a negative free cash flow of around Rs 40,000 crore in FY20 and FY21.

Hence, it might require equity support from the parent. In the past, Tata Sons has been proactive in providing equity funding through rights issue. In May 2019, it pumped around Rs 3,000 crore into Tata Motors through warrants conversion.

The company’s financial services business will also need fund infusion in the current fiscal after it received Rs 3,500 crore investment in FY20. The company had cash and cash equivalents of Rs 3,700 crore as of March 2019, according to its annual report. The company’s net debt increased to Rs 30,488 crore as on July 31, 2019, because of increased investments of Rs 27,870 crore as on March 31, 2019.