labels: M&A, Cars
After dumping UK guarantee terms, Tata Group to raise funds for JLR revival news
By Ravi Kunder
09 May 2009

After rejecting the UK government's onerous terms for underwriting less than half of EIB's 366 million euro loan (See: Tata Motors rejects Jaguar Land Rover loan guarantee terms) for just six months against a loan tenure of three years, the Tata Group is reported to be seeking to fund JLR on its own terms from external sources. 

The Tata Group is reported to have asked its financial adviser, Citigroup, to look for a consortium of banks or investors to underwrite part of the 340 million loan sanctioned by the European Investment Bank last month for making low-emission cars. (See: Tata's JLR receives 340 million from EIB)

As per the terms of the EIB loan, the sanctuioned amount can only be disbursed after it is underwritten by a guarantor.

Since JLR also needs about 500 million in short-term working capital to run its day-to-day operations, the Tata Group may source this money through the debt markets and put up any shortfall, if any by pumping in its own money.

But the financial health of JLR currently is precarious since it has to settle 100 million suppliers bill this month as well as other miscellaneous bills pending for 12 months.

Since it is now looking at external funds, which are expected to come at a high interest cost, JLR may be forced to cut more costs, mainly on investments for its new models and cut more jobs from its 15,000 workforce.

Even after putting up what has been described as humiliating conditions to rubber stamp the loan, the UK business minister Ian Pearson thought it fit to warn the company against stop complaining about the loan terms made by the UK government, while speaking in the House of Commons.

Pearson advised the company that such negotiations should be conducted "professionally behind closed doors" and that there was no need to go public on the deal.

However, it was not Tata or JLR that went public with the deal, Howard Wheeldon, a senior strategist at the brokerage BGC Partners, the UK government-appointed brokerage BGC Partners that was involved in the underwriting negotiations, who went live on Sky News, saying, "Esssentially the British government is putting nothing into this, so what's the charge for?''

 In fact, JLR was diplomatic enough to say that the talks were always going to be complex and the negotiations were still continuing.

Comenting further on the unreasonableness of the conditions that included a permanent seat on the board of JLR along with the right to appoint the company's chairman, Wheeldon 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." (See: UK government dictates terms for JLR loan)

An even more critical had BBC 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."

Since neither Ratan Tata nor Tata Motors have officially made any statement so far on the UK government's terms, it is difficult to comprehend the government's ire with them, unless it was reacting belatedly to comment Ratan Tata had made in March to Sky News and the Birmingham Post, ''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: Tata's to inject funds into Jaguar Land Rover)

Incidentally, the US-based Reputation Institute has World's Most Reputable Companies for 2009, released yesterday, has rated the Tata group 11th out of 600 companies worldwide - way ahead of global giants like Google, Coca-Cola, PepsiCo, Walt Disney, Microsoft, Toyota or General Electric - while not a single UK company figures even among the top 25.

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) with the Tata Group having already provided hundreds of millions of pounds since then in funding Jaguar Land Rover. 

The Tata Group had initially financed the acquisition through a $3-billion bridge loan and later reduced the loan by $1 billion after Tata Motors' rights issue. 

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After dumping UK guarantee terms, Tata Group to raise funds for JLR revival