Crisis won't end in a hurry, says Ratan Tata

Chairman wants freeze on acquisitions, drastic reduction in operational costs.

Tata Group Chairman Ratan Tata feels the twin problems of liquidity and demand slump will continue at least for the next 12 months.

In a letter to his group CEOs, which was released to the media today, Tata said the worrying state of affairs “is not likely to improve substantially over the next 12 months” despite the government’s efforts.

Tata has asked all group companies to undertake a critical review of their cash flow requirements and draw up business plans with defined strategies needed to operate in this difficult period. “Failure to manage this crisis could result in irretrievable positions,” he said.

While dealing with the crisis, Tata wants improvement in operational efficiency, aggressive implementation of restructuring of internal cost framework, drastic reduction in operating expenditure, deferment of non-essential capital expenditure & capacity expansion and freezing of all acquisitions unless considered strategically critical.

Tata said the present global crisis has proved to have far-reaching effects on several businesses in many geographies. “Some of our companies with substantial foreign operations, or those which have made substantial acquisitions, are already facing major problems in raising capital or establishing lines of credit for their operations,” Tata said.

He said in India also, many companies were facing or would soon face major problems in accessing credit due to lack of liquidity in the domestic market as well as their inability to raise equity because of the depression in the stock market.

The Tata Group, which had revenues of about $62.5 billion in 2007-08, operates in many sectors, including software, steel, energy, automobiles and consumer products. The group’s 27 listed enterprises have a combined market capitalisation of around $60 billion, according to the company website said.

The group has been facing problems of late. For example, the recently-concluded rights issue of Tata Motors to raise capital for refinancing a part of the Jaguar and Land Rover bridge loan, received poor response from investors and the promoters and underwriters had to make up for the substantial gap in funding.