Standard & Poor's downgrades Tata Motors credit rating

04 April 2008

Tata Motors may have successfully bought the two iconic brands Jaguar and Land Rover (JLR), but concerns remain on the high debt that the company is acquiring to fund this acquisition.

Also, several analysts feel that what Ford could not do for so many years – turn the brands profitable – Tata will also find difficult to achieve. One small note: Land Rover is currently in the black, but only just so. Considering the massive amount of investments made by Ford in these two brands, a positive return on investment is still far away.

Now comes the news that rating agency Standard & Poor's (S&P) has lowered corporate credit rating on Tata Motors by one notch to ''BB'' from ''BB+'' after the company finalized its recent acquisitions.

The background

This was not entirely unexpected, as the agency had placed the rating for review as early as January, when Tata Motors was announced the front-runner for the Ford brands.

(See: Long-term prospects of Jaguar-Land Rover deal positive: Tata Motors MD)  Tata Motors has declared that it will pay $2.3 billion for JLR, and intends to raise $3 billion to finance the purchase, as well as for working capital and help fund the manufacture of the Nano.(See: SBI, Citigroup, JPMorgan to provide $3 billion for Tata Motors' Jaguar-Land Rover acquisition)