Tata Group says the Rs 4,200-cr issue will be used to pay the Jaguar deal debt
State Bank of India is negotiating with other commercial banks to share the onus of giving guarantees to Tata Motors’ Rs 4,200 crore debenture issue.
The Tata group company will use these proceeds to pay the debt it took to acquire Jaguar Land Rover (JLR) in Britain.
ICRA, the rating agency, has assigned one of LAAA (Structured Obligation), indicating the lowest level of credit risk. The rating to these debentures is based on the strength of the unconditional and irrevocable guarantee by State Bank of India (SBI) for the payment of all dues.
Merchant banking sources said “No one bank can give a guarantee for the entire issue as a matter of prudence. SBI is discussing with other banks for sharing of risks in issuing guarantees.”
TML plans to raise the principal amount of Rs 4,200 crore in four tranches. The first tranche will consist of debentures worth Rs 800 crore with 23-months tenure (maturity in March 2011), the second for Rs 350 crore with a tenure of 47 months (maturity in March 2013).
A large chunk will be raised through debentures which have long tenure. In the third tranche, it will raise Rs 1,850 crore through debentures which will mature in March 2014, and then issue debentures worth Rs 1,200 crore maturing in March 2016.
Under the structured payment mechanism, SBI assures timely payment of the dues to investors. The interest will be paid quarterly, while the principal will be paid in one go (bullet payment).
The debentures carry low interest during the tenure, with the yield being achieved though a redemption premium payable on the maturity of each tranche.
The full, unconditional and irrevocable guarantee from SBI will be sufficient to cover all issuer obligations that may arise at any point of time, ICRA said.
The guarantee amount required is stipulated at Rs 4,900 crore at the beginning of the transaction and shall come down over the tenure with the amortisation of tranches.
TML will open a no-lien account with the designated bank. And will deposit the due amount into this account at least eight days prior to any interest/principal payout date. The debenture trustee will then directly fund the investor accounts on the scheduled payout date.
