The issuance of fresh share and convertible bonds by Tata Motors to the tune $750 million has no immediate impact on the rating and outlook of the country's leading auto maker, global credit rating agency Moody's said today.
However, the agency said, "positive momentum on the rating could build up over the near to medium term" if Tata Motors continues to deleverage its balance sheet while improving its performance both in India and at Jaguar Land Rover (JLR).
The comment follows TML's announcement that it has raised $750 million through issue of fresh shares in the international market and foreign currency convertible notes.
The proceeds are expected to be used to repay the debt incurred in connection with the acquisition of JLR, which stands at $700 million, and for other purposes like capital expenditure, working capital and other general corporate purposes.
"The announced capital raising is certainly a positive for TML as it will allow the company to reduce leverage, albeit not significantly, and improve its liquidity profile," said Ivan Palacios, a Moody's analyst.
"However, there has been no immediate positive impact on TML's rating given that its leverage levels remain high," Palacios said.
The agency has a 'B3 corporate family rating', a low investment grade rating for the auto giant with a 'stable' outlook. The corporate family ratings are based on a corporate family's ability to honour all of its financial obligations.
"Moody's expectation that the company will generate negative free cash flow in FY09/10 means further leverage reductions will be challenging," Palacios said.
The rating agency said Tata Motors was progressively delivering on its objective to reduce debt through capital raising, asset sales and internal accruals.
Adding to this capital raising exercise, the company has sold part of its stake in Tata Steel for around $200 million during the current fiscal, it said.
Further, TML recently secured a GBP 175 million loan for JLR, sanctioned by the State Bank of India, taking the overall amount of new facilities completed this year at the JLR level to GBP 500 million, the agency said.
While JLR's operating performance continues to face material profitability pressure due to weak volumes and more challenged business conditions in the US and Europe, the situation in India is progressively improving.
"Moody's expects to see a slow but progressive improvement in performance in the following quarters, as the company benefits from the impact of its cost reduction plans, lower raw material costs and gradually improving demand," it said.
