Tata Motors Ltd has indefinitely deferred a planned fundraise of up to $1.5 billion in foreign currency loans after failing to garner sufficient interest from potential lenders, two people directly aware of the development said, requesting anonymity.
The funds were to be raised by a Singapore-based entity of Tata Motors to refinance existing loans of Tata Motors as well as its wholly-owned unit, UK-based Jaguar Land Rover Automotive Plc (JLR), said the people cited above.
Tata Motors was in talks with several foreign banks since the start of this year to avail the syndicated loan facility, the people said. “The loan was to be raised by August this year,” said the first person cited above.
“Tata Motors has now decided to pursue fundraise options with domestic lenders,” the person said.
In June, Moody’s Investor Service downgraded Tata Motors’ corporate family rating and senior unsecured instruments rating to Ba3 from Ba2. The downgrade was led by the weak performance of JLR, according to Moody’s. On 19 August, CARE Ratings downgraded Tata Motors’ long-term credit rating amid JLR’s financial woes. CARE said it has downgraded the rating on the long-term bank facilities of Tata Motors to “AA-/Negative” from “AA/Stable”.
“Typically, a downward revision in credit ratings results in cost of funding going up by several basis points. However, many of Tata Motors’ existing foreign lenders are now looking to down-sell some of the facilities, though they are yet to be able to do so,” the second person said. “Unless they are able to sell the existing loans, the lenders may not be able to take more exposure to Tata Motors.”
“Tata Motors group has a strong balance sheet,” a company spokesperson said. “As of last financial year-end, our net worth was ₹60,000 crore. Our automotive business has a net debt of₹28,700 crore and we generate an Ebitda of ₹27,000 crore, giving us a comfortable net auto debt to Ebitda ratio of 1.05.”
“Our debt has maturities that are well spread out over the next seven years and we have well-diversified sources of funding,” the spokesperson said. “Operationally, in Q1FY20, JLR has reduced its cash outflows by almost £1 billion compared to the previous year and we expect this trend to continue in the coming months too. We tap markets regularly for our funding needs depending on prevailing market conditions.”
The Indian automotive sector is in the midst of an unprecedented slowdown, with passenger vehicle sales falling the most in nearly two decades in the June quarter. This underscores subdued consumer sentiment, a slowdown in economic activity, farm distress and a liquidity squeeze.
Tata Motors’ problems have been compounded by the weakening performance of JLR, which has been its cash cow. JLR was first downgraded by Moody’s in July 2018 after sales in China suddenly dropped in June. The decline in China has since eased, but demand turned negative, with sales declining in other key markets such as the US, UK and Europe. As a result, JLR has witnessed an overall 13.5% year-on-year sales decline in May, Mint reported on 23 June.