Tata Motors and Jaguar Land Rover (JLR) have tied up $250 million ( £170 million) in distribution financing from GE Capital.
GE Capital has undertaken to finance all new production of JLR cars from the time the cars leave the factory for up to 90 days, while the cars are in transit to dealers.
The deal will be finalized by the end of the day will help the maker of luxury brands access working capital, the funds used for the day-to-day operations such as paying suppliers.
Tata Motors revealed that the proposed arrangement was for working capital and not linked to refinancing of debt raised by the company for the acquisition of JLR. Tata Motors had earlier said it did not need guarantees from the British government funds for its short-term loans after long-drawn out talks fell through.
Subsequently, JLR had announced that it is in the process of lining up financing of up to £500 million, and had tied up about £175 million from the State Bank of India, and from financiers like Bank of Baroda, Burdale and Standard Chartered. The arrangement with GE, without any guarantees from the UK government, is likely to be seen as a vote of confidence in the ability of JLR's new owners to turn the ailing maker of famous British brands.
Ken Gregor, CFO, Jaguar and Land Rover, said: “We are pleased that our funding plans have further progressed and welcome the confidence shown by GE Capital in the Jaguar Land Rover business.”
The deal is structured such that $250 million is available at a point in time. GE Capital is already in talks with other major automakers in Europe to replicate its trendsetting JLR arrangement, as they struggle to manage working capital flows with huge inventories in the wake of a recession.
One of JLR's main contentions in its abortive bid for state aid was the unavailability of working capital financing from traditional banking sources in the credit crunch.