JLR looks at financing options following shock $4 billion write-down

Tata Motors' arm says conditions not right to tap bond market; may turn to other bank financing

Jaguar Land Rover, reeling from a $4 billion writedown, a slump in China sales and uncertainty around Brexit, said conditions aren’t right for it to borrow from the bond market and that it’s seeking alternative funding.

The luxury automaker needs to raise $1 billion within 14 months to replace maturing bonds, while feeding an investment program for electric cars that’s burning through cash. 

To support its needs, JLR could increase a receivables facility or turn to other bank financing, with further options including leasing assets and tapping export credit, said Treasurer Ben Birgbauer in an interview.

JLR’s owner Tata Motors shocked investors on Thursday when it revealed the extent of the problems its UK arm was having in China. Sales of Jaguar sports cars and Land Rover SUVs dropped 35 per cent in the world’s biggest auto market in the nine months to December 31, sending the unit to a £273-million ($354 million) loss and knocking as much as 30 percent off the Tata stock.

“Market conditions are presently less favourable in general and our bonds are trading below par, reflecting our recent financial performance,” Birgbauer said by telephone. 

“We have always said we monitor the debt market and look to issue debt when market conditions are more favourable.”

Britain’s biggest carmaker is slashing 4,500 jobs, or about 10 per cent of the workforce, as it responds to slowing sales. That’s on top of the 1,500 people who left the company in 2018. The measures will trigger a one-off charge of £200 million in the current quarter.

JLR’s 4.5 per cent bonds maturing in January 2026 have dropped to a low of 77 cents on the euro, equivalent to a yield of about 8.9 per cent, according to prices compiled by Bloomberg.

The company is not planning to change its preference for unsecured financing, said Birgbauer. Remaining resources include a £1.9-billion undrawn credit facility and £2.5 billion of cash, based on quarterly numbers published by Tata.

Dealer crisis

One major problem facing JLR in China is an ineffective dealer network, according to a presentation from the UK business. 

Only 18 per cent of outlets are in so-called tier-1 cities like Shanghai and Beijing, and more than one-third have been open for three years or less. The company now plans to overhaul the operation, cutting back on deliveries to reduce stock and investing in measures to boost its brand, logo and slogans.

Executives said on a conference call with investors that it’s not possible to predict when China volumes will begin to recover, highlighting international trade tensions and how much stimulus the state chooses to provide as determining factors. 

JLR says it can grow global sales in fiscal 2020 with the help of other markets and launch of the revamped Range Rover Evoque. Prior to this week, concerns over JLR’s performance had centered on the impact of Brexit and a government clampdown on diesel-powered vehicles in depressing UK car sales.

Royal London Asset Management had already reduced its exposure to JLR in response to “Brexit-specific risks and their ability to maintain access to the financial markets”, according to head of global high yield Azhar Hussain.

Appetite among investors for riskier European debt is yet to bounce back after volatility swept through the market at the end of last year. 

There’s been very few sales of junk debt in Europe this year and high-yield spreads remain much wider than they were prior to their fourth-quarter blowout.