The UK government, which had earlier placed Iceland along with terror groups like the Al-Qaeda to seize the Icelandic bank's assets under British anti-terror laws late last year, has now placed impossible conditions on the JLR management in exchange for underwriting les than half the €366-million loan passed by the European Investment Bank (EIB) for the automaker.
In an unprecedented move, the UK treasury, has put such onerous and humiliating conditions on JLR for merely underwriting the loan, that commentators say smacks of an attempt at backdoor nationalisation of the maker of the marquee brands.
In early April, the EIB passed JLR's £450 million (€366 million) loan application for making low-emission cars, (See: Tata's JLR receives £340 million from EIB), which required to be underwritten by the UK government prior tyo its disbursal by the EIB.
JLR was also negotiating with the UK government for an additional £500-million working capital loan at commercial rates within two years.
But after a month of negotiations, the UK treasury and the Department for business, enterprise and regulatory reform (DBERR) told the management of JLR that they would underwrite only £175 million of the £450 million EIB loan for which the carmaker must pay 15 per cent up front as commission to the government. This would have left JLR with only £150 million.
To sour the deal further, the UK government has asked JLR's owner, the Tata Group to invest £300 million in the company before it would actually underwrite the loan and that too for just six months instead of the three-year period stipulated by the EIB.
Worse, perhaps to prod the group into refusing the loan on its own, the UK government wanted to replace the chairman of JLR as well as appoint a director on the board, so that decisions on the day to day management of he company would be whetted by the government.
Over and above all this, the government also wants an assurance from JLR that it will not axe any of the 14,500 UK employees.
The UK government had earlier this week rubbished media reports about asking for unprecedented terms from JLR for providing guarantees to the EIB and said that it was seeking normal security, for providing a loan. (See: JLR's €366 million EIB loan hits the wall in Whitehall)
Howard Wheeldon, a senior strategist at the brokerage BGC Partners, told Sky News in Jeff Randall Live, "Esssentially the British government is putting nothing into this so what's the charge for?'' and added, "It wants a permanent seat on the board. That is my understanding. Again this would be acceptable if it was putting up a lot its own money, but it isn't."
The BBC was more scathing and said, ''Broadly what ministers are saying to Tata is: "We think you have deep enough pockets to support Jaguar Land Rover on your own; but we may be wrong, so we're going to make you pay an arm and a leg to test you."
Tata Motors had bought JLR for $2.3 billion in March 2008 (See: Tata Motors confirms Jaguar, Land Rover deal with Ford for $2.3 billion) and the Tata Group has already provided hundreds of millions of pounds since then in funding Jaguar Land Rover.
In January, the UK government had unveiled a £2.3-billion loan package for the auto industry, to enable car manufacturers to tap up to £1.3 billion of loans from the EIB, and a further £1 billion loan from the Treasury to fund the development of more eco-friendly cars. (See: Britain unveils £2.3-billion loan for car industry)
JLR, unlike other UK car manufacturers who wanted a bail out, has all along only sought a commercial loan to ensure sufficient liquidity to run its day-to-day operations because the UK banks, even after having been saved by the government had stopped lending.
The Birmingham Post was scathing in its comments: ''Just what is going on within Her Majesty's Treasury? We pose the question because it is now becoming obvious that the mandarins who control the nation's finances have no serious intention of helping Jaguar Land Rover to survive this bank-driven financial crisis - even though it is one of the few companies capable of substantiating our claims to be an advanced manufacturing country.
''The £500 million it needs - cash that, in normal circumstances, JLR or Tata would raise from its banks - looks like small change compared with the many billions that the government has poured into keeping the reckless and feckless banks afloat.''
Even though the UK government announced the £2.3-billion loan package in January, it has still granted no loan, prompting Ratan Tata, chairman of Tata Motors the owner of JLR, to criticise a foreign government's attitude for the first time ever 24 March.
Speaking to Sky News and the Birmingham Post, he said that the UK government should understand that JLR was seeking a loan from the government for working capital as UK banks have stopped lending, and JLR was not looking for a bailout.
Also responding to criticism in the UK for seeking funds from the UK government instead of dipping into the Tata Group's own coffers to tide over the crisis, Tata said, ''Since the acquisition we've either loaned or converted to equity Jaguar Land Rover's $1 billion over and above the acquisition and if the British government's view is that we liquidate the rest of Tata to resurrect JLR, I think that's unrealistic.'' (See: Tatas to inject funds into Jaguar Land Rover)
JLR spends £400 million a year on research and development or around a third of the UK's total annual investment in automotive R&D, in one of the most modern auto research facilities in the UK and Tata said that without government guarantees, the research and development programmes will and will have a knock-on effect in the future.
The UK DBERR said in a statement that the government is still continuing its talks with JLR as well as with Tata Motors on the loan, but sternly added that the main responsibility of financing JLR rests with the parent company, prompting a harp response from commentators who say it is extremely surprising that the UK government showed little or no confidence in the automaker while the EIB did, when it passed the £450 million loan.
Citing informed sources, the Birmingham Post said that Ratan Tata is believed to be furious at the development and would reject the UK government's loan altogether.
Writing in the Birmingham Post, BGC Partner's Wheeldon sums it up, ''Tata Motors certainly does not deserve to be treated by the UK government in this way - tantamount to being a leper…… and one could hardly blame JLR owner Tata for interpreting such disgraceful treatment at the hands of the UK government as a signal to move these fine brands to India - lock, stock and barrel!''