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January 9, 2008 |
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TATA MOTORS: Bond Risk Rises on Focused Discussions With Ford Tata Motors Ltd bond risk rose to a record with credit-default swaps on the company reaching 325 basis points on Tuesday morning from 300 basis points last week, The Economic Times reports. According to the report, the increase of the risk of the Tata Motors defaulting on its bonds was brought about by the concern that it will borrow to fund its acquisition of Ford Motor Co's Jaguar and Land Rover. Last week, Ford disclosed that it has entered into "focused negotiations at a more detailed level" with Tata Motors, signaling that the Indian carmaker has become the preferred bidder for the two brands. "It may not be a good time for Tata to enter into such a deal given the state of the credit market," ET quotes Aaron Low, a principal in Singapore at hedge fund Lumen Advisers as saying. The Ford negotiations cued rating agencies to place Tata Motors credit ratings on negative watch. Moody's Investors Service has placed the Ba1 Corporate Family Rating of the company on review for possible downgrade. Should Tata proceed with the transaction and acquire the two businesses, it will face considerable execution and integration challenges, Moody's Vice President/Senior Analyst Elizabeth Allen said. Standard & Poor's Ratings Services, on Jan. 7, 2008, placed on CreditWatch with negative implications its: -- 'BB+' long-term corporate credit ratings on Tata Motors; and -- 'BB+' foreign currency rating on all of Tata Motor's rated debt issues. Standard & Poor's Credit Analyst Anshukant Taneja said, Tata's acquisition of the brands could potentially have a negative impact on the corporate credit ratings on the company, especially if it is heavily funded by debt. India's rating agencies, ICRA and CRISIL also placed the carmaker's ratings on rating watch with negative implications. According to CRISIL, if the acquisition involves a high level of debt, the transaction would have an adverse impact on Tata Motors' financial risk profile over the short to medium term. It would also pose challenges to Tata Motors' business risk profile, since a significant proportion of the consolidated revenues will be driven by the acquired businesses where Tata Motors has yet to build and demonstrate its capabilities, CRISIL adds. India's largest automobile company, Tata Motors Limited -- http://www.tatamotors.com/ -- is mainly engaged in the business of automobile products consisting of all types of commercial and passenger vehicles, including financing of the vehicles sold by the Company. The Company's operating segments consists of Automotive and Others. In addition to its automotive products, it offers construction equipment, engineering solutions and software operations. Tata Motors has operations in Russia and the United Kingdom. * * * Standard & Poor's Ratings Services, on July 13, 2007, assigned its 'BB+' issue rating to the proposed US$490 million zero- coupon convertible bonds of India's Tata Motors Ltd. (BB+/Stable/--). The bonds represent a direct, unsecured and unsubordinated obligation of the company. Proceeds from the bonds will be used for capital expenditure, overseas investments, acquisitions, and other general corporate purposes. Moody's Investors Service, on July 26, 2005, gave Tata Motors 'Ba1' long-term corporate family and senior unsecured debt ratings. |
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