Tata Motors, the maker of Jaguar and Land Rover vehicles, will borrow from the public for the first time in 13 years as the credit crunch limits its ability to refinance loans used to acquire the luxury brands in June.
Tata Motors will pay as much as 11 per cent annual interest on three-year deposits from the public, spokesman Debasis Ray said today. A government bond with a similar maturity offers a 6.97 per cent yield.
The Mumbai-based company needs money to replace a $3 billion bridge loan it used to fund the $2.4 billion purchase of the UK-based luxury units from Ford Motor. A global credit crunch after the bankruptcy of Lehman Brothers Holdings has cut the availability of financing for companies amid a worldwide recession.
''They are giving every source a shot,'' said Ambrish Mishra, analyst at MF Global Sify Securities India. ''They are running out of time'' to refinance the bridge loan taken for the purchase, he said.
Banks have curbed lending worldwide because of concerns about getting their money back amid the economic slowdown. India's overnight call money rate, or the rate at which banks lend to each other for a short term, rose to as high as 19.5 per cent in October compared with an average 7.75 per cent for this year. The country's inflation rate slowed to a six-month low of 8.8 per cent in the week to November 15.
State Bank of India, the nation's biggest, is offering 10 per cent interest for 1,000 days of deposits from today, according to the bank's Web site.
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The public deposits plan comes after the company said in October it's reconsidering a plan to raise as much as $600 million (nearly Rs 3,000 crore) from overseas markets due to the global credit crisis.
Tata Motors on October 20 closed a rights offering of shares to raise more than Rs 4,100 crore ($819 million) to help fund the purchase of the luxury auto units. The issue was subscribed after the Tata Group invested Rs 3,000 crore, the truck maker's Chief Financial Officer C Ramakrishnan said on October 31. Underwriters to the issue arranged about Rs 300 crore.
''There is a liquidity crunch and companies need money,'' said Amit Kasat, an analyst at Reliance Equities International in Mumbai. ''If you are not getting funds from banks, you go to the public for deposits. There is a big problem for finance at the Tata Group after all their acquisitions and loans. There is urgency for money.''
Tata Motors fell 3.1 per cent to Rs 132.65 in Mumbai trading today. The stock has fallen 82 per cent so far this year.
Debt refinancing
The company is seeking to raise $1.2 billion in loans to refinance debt from the acquisition, International Financing Review said, without saying where it got the information. The company is in talks with banks for a five-year loan that will be borrowed by its UK unit, IFR reported.
Tata Motors will pay around 600 basis points above the London interbank offered rate, the largest spread on any loan from an Indian company, IFR said. A basis point is 0.01 percentage point.
The fundraising comes as Moody's lowered Tata Motors's rating by two levels to ''B1,'' four ranks below investment grade on November 28 and said its credit outlook is negative. The downgrade may raise borrowing costs for Tata Motors. Moody's last lowered the rating on June 3.