JLR parent plans expansion and debt reduction

JAGUAR Land Rover parent Tata Motors has announced plans to raise more than £660m in order to expand its operation and reduce the debt it has accumulated purchasing the luxury brands.

The carmaker will issue new shares, bonds and other investment opportunities in order to raise the funds.

In a statement, the company said its board had decided to ask for shareholders’ approval to raise 47bn rupees ($1bn) through a combination of “ordinary shares, ‘A’ ordinary shares, convertible bonds, debentures, warrants or other equity linked instruments in the domestic and/or international markets in one or more tranches”.

“The above fund raising proposals will be for meeting the company’s growth plans as well as for reducing the debt on its balance sheet.

“The timing and structure of the issues will be decided depending upon market conditions post shareholders’ and other approvals,” said the statement.

Since acquiring the two brands from Ford in 2008 for a combined £1.15bn, Tata is thought to have acquired net debt of around £2.5bn, although this is down considerably on last year.

Its faith in the British brands has been repaid since acquisition and sales of the two marques have been rising steadily – Land Rover recently enjoying its best month ever.

The company has also recently announced plans to begin producing Land Rovers in China to tap into new opportunities for sales among the country’s growing middle classes.

Tata also manufactures the world’s cheapest car, the Nano, sales of which are expected to rocket across the sub-continent over the next few years.

However, Tata is also ambitious and it has made no secret of its desire to expand. Reports in India have suggested that the company may be close to buying an automotive company in Mexico to capitalise on opportunities in Latin America – which has a very similar customer demograph to its domestic market.

It is also keen to steal a march on low cost rivals such as those in South Korea who have also been eyeing up opportunities in emerging markets.

Analysts in India said debt reduction had been high on the company’s agenda for some time and if it was to achieve its targets it either had to increase profits considerably or increase investment from outside sources.

They said the former was unlikely in the current climate and therefore it had been realistic and had opted to attract new investment.

Tata is also seeking shareholder approval to raise the limits for borrowings and for the creation of security on the company’s assets from Rs.20,000 crores to Rs.30,000 crores.