Rating downgrades may make fund mop-up difficult
Hit by domestic slowdown and recession in the West, corporate giant Tatas are striving to raise over Rs 15,000 crore on top of the Rs 13,000 crore it got from the sale of equity in a telecom subsidiary.
Resource mobilisations through public offer of debt securities, sale of Tata Motors' vehicle loan pool, private equity placement and soliciting public deposits apart, the group is also seeking support from the UK and Dutch governments for rescuing its prized purchases Corus and Jaguar-Land Rover.
While Tatas' discussions with the governments in Britain and Netherlands have not taken a final shape either way, the market regulator has asked for clarifications on an open offer related to the sale of 26 per cent equity in Tata Teleservices to Japan's NTT DoCoMo. The company refused to comment on the development.
There were also no response on the quantum and options of fund mobilisation, but estimates show that it could be in the range of Rs 15,000 crore to Rs 20,000 crore.
After initiating the process for raising about Rs 2,700 crore through public deposits, Tata Motors is believed to be mulling to raise about Rs 10,000 crore by selling its vehicle loan pool, most probably to a group company. At the same time, another group entity Tata Capital is looking to raise about Rs 1,000 crore through a public offer of debt securities. The same company is also planning to raise about $350-500 million (about Rs 2,000 crore) through the private equity route.
The various fund-raising plans coincides with a string of rating downgrades for some group companies such as Tata Motors, Tata Steel and Tata Chemicals by credit rating agencies, including Standard and Poor's and Moody's — a development that makes raising debts difficult and costlier.
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The group, whose automotive arm is seeking a £1 billion (about Rs 7,000 crore) financial aid from the government in the UK for its British unit Jaguar and Land Rover, has also sought assistance for Corus employees in Europe.
On the front of NTT DoCoMo deal, an open offer was announced on November 14 and the Securities and Exchange Board of India (Sebi) was subsequently approached by the merchant banker of the offer, Lazard India Private, on December 1 for the regulatory go-ahead. According to the latest information available on Sebi's website, "reply (is) awaited from MB (merchant banker) on clarifications sought" regarding the Rs 949-crore open offer.
On Tata Motors, rating agency Crisil has said that the "performance of retail finance portfolio of Tata Motors and Tata Motors Finance has been weak," and pointed to higher rate of default by its borrowers to 9.7 per cent in November, 2008 from 6.2 per cent in September 2007. "The vehicle financing business of Tata Motors and Tata Motors Finance disbursed Rs 10,300 crore of loans in 2007-08 (April 1 to March 31), as against Rs 9,400 crore in 2006-07." About its public deposit scheme, through which it can raise up to Rs 2,700 crore, a Tata Motors spokesperson had said earlier in the month this was for "ongoing requirement."
"We also believe that from the investor's point of view, it is an appropriate fixed-income instrument, in the light of the current market environment."
The company met with a cold response from investors recently in its bid to raise up to Rs 7,200 crore through sale of shares to existing equity holders for part funding the JLR deal and promoters had to chip in to save the issue that closed in October.