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Tata Motors Set to Mop up Rs 2,500 Crore to Trim Debt Pile

By Motortrend India Staff   |   24 June,2010

Tata Motors will consider ways of raising equity or foreign currency convertible bonds (FCCBs) on Monday as India’s largest truck and bus maker steps up efforts to cut debt and improve its debt-equity ratio.

The Mumbai-based owner of Indica and Jaguar on Wednesday said its board will meet on Monday to consider raising long-term funds. It did not disclose the end use of the money. A person close to the situation said the company is likely to pass an enabling resolution to raise up to Rs 2,500 Crore through global depository receipts (GDRs), FCCBs or share sale to qualified institutional buyers.

“The funds will be raised to reduce the pressure of debt on the balance sheet as the debt-equity ratio has moved up considerably,” said Vaishali Jajoo, analyst at Mumbai-based Angel Broking. Another research analyst with a foreign brokerage said Tata Motors would change its debt profile from short-term to long-term so that it gets more time to repay loans.

Tata Motors, which bought British marque brands Jaguar-Land Rover (JLR) for about $2.3 billion in 2008 from Ford Motor, has been looking to raise money to pay off a large portion of its debt of Rs 18,800 Crore. Of this, Tata Motors is to repay around Rs 8,000-Crore debt this year. It also needs around Rs 2,500 Crore to meet its capital expenditure, which is largely being met by cash flows.

Its debt-equity ratio is now 1:2.05 and the company wants to cut it to 1:1. Tata Motors shares slipped marginally to Rs 790 in weak trade on Wednesday, valuing the company at over Rs 40,000 crore. Back-of-the-envelope calculations show that it will need to dilute less than 1 per cent to raise around Rs 2,500 crore. The promoters hold 37 per cent.

Last October, the company had raised $750 million by selling GDRs and convertible notes to repay debt taken to buy JLR. It had taken a $3-billion bridge loan to finance the acquisition and meet its working capital requirement.

Source: The Economic Times