Reserves, divestments,debt to fund takeover

Tata Motors will fund its $ 2.3 billion deal to acquire Jaguar and Land Rover through a mix of existing cash reserves...

Tata Motors will fund its $ 2.3 billion deal to acquire Jaguar and Land Rover through a mix of existing cash reserves and new debt. The company had raised $3 billion as bridge loan for a period of 15 months. “This would be refinanced in the long term through equity and debt in appropriate measure and divestment,” Tata Motors CFO C Ramakrishnan said in a teleconference with reporters.

“To fund the deal, Tata Motors also plans to disinvest stake in some of its companies,” Ramakrishnan added. The takeover is being executed through a special purpose vehicle (SPV) — Tata Motors UK — which would be the holding company of the two brands. “The companies are coming to us as debt-free companies,” he said.

Though Tata Motors’ interest burden is expected to rise in the medium term, putting pressure on the net earnings margin, market analysts are optimistic about the long-term outlook of the company after the JLR takeover. “We believe the Tata-Jaguar Land Rover deal to be a value accretive proposition for the long-term investors of the company. The deal will create a landmark achievement for Tata Motors as it will not only own two of the world’s most renowned luxury brands but also mark its presence beyond Asia,” said Piyush Parag, auto analyst at Religare Enterprise.

The two brands are currently in loss. Land Rover is doing brisk business and is expected to recover from losses in FY09. However, Jaguar is expected to take longer to break even. To top that, Tata Motors has assured Ford that it will not disrupt the five-year plan that Ford had in mind for Land Rover and Jaguar.