Tata Motors to raise $750 mn through notes to service debt, fund capex

The bulk of the fundraising is expected to refinance existing ECBs, while the rest will be used for capex

Tata Motors, India’s biggest automaker, is set to raise $750 million (Rs 4,600 crore) in what could be its second fund raising activity this year.

The Mumbai-based company will reportedly issue $750 million of senior unsecured notes, according to Bloomberg.

The $500-million 5.5-year issue is priced at 4.625 per cent while another $250-million issue is priced at 5.75 per cent for a 10-year period, stated the agency.

In May, the company’s wholly owned-subsidiary TML Holdings raised $300 million (about Rs 1,800 crore) through an issue of debt securities having fixed interest rate. Last year TML Holdings, which also owns Jaguar and Land Rover, raised $350 million through senior fixed notes.

When contacted the company did not comment.  Tata Motors intends to use a bulk of proceeds to refinance existing ECB debt with the balance to be used to fund capital expenditure plans and investment. Tata Motors would be spending about Rs 3,500-4000 crore on capital expenditure at the stand-alone level this year. Last year it spent Rs 3,094 crore on capex, design and development of products.

Jaguar Land Rover, the UK-based luxury brand, has announced a hike in capital expenditure plan this year to £3.5-3.7 billion from around £2.75 billion last year. This includes funding for the new China and Brazil plants, new power trains and technologies to meet regulatory requirements, capacity expansion at the existing UK facilities and also meeting new product development expenses.

“In the near term, funds are needed to support the Zest and Bolt launches as well as the inventory increase as overall activity picks up. We also expect further investment to be made in TMFL, which is integral to the marketing effort but which is experiencing a higher level of NPAs and lower margins resulting from the last two years of weak vehicle sales,” said a recent Moody’s report on Tata Motors which gave a Ba2 rating to the issue of notes with a stable outlook. The compact sedan Zest launched by the company in August met a lukewarm response from the market with just over 3,300 units sold in the first month (September) of the sale. Maruti Suzuki Dzire sold a little over 17,000 units and Honda Amaze clocked around 5,000 units in the same month.

The company had stated in September that it had got bookings for 10,000 units for the Zest. It is also simultaneously gearing up for the launch of the hatchback Bolt set for launch before March. The Bolt is built on the same platform as Zest and would be competing against the like of Hyundai Grand i10 and Maruti Celerio.

“The stable outlook reflects JLR's relative strength which continues to allow time for the core Indian business to recover and, despite the negative free cash flow overall, continues to support group credit metrics at an appropriate level for the Ba2 rating. However, FY2015 is a critical year as JLR's sales growth rate slows and execution risk rises both in terms of increased product development expenditure and the starting up of overseas manufacturing operations. At the same time, Tata's Indian operations need to regain some of their lost market share with success of new launches key to the passenger car business's long-term prospects,” stated the Moody’s report.