The Hindu Business Line : S&P places Tata Motors on rating watch

Mumbai Jan. 7 Days after the US carmaker Ford announced that Tata Motors was the preferred bidder for its European luxury brands Jaguar and Land Rover, Standard & Poor’s Ratings Services today placed its ‘BB+’ long-term corporate credit ratings on the Indian car maker on CreditWatch with negative implications.

At the same time, Standard & Poor’s placed its ‘BB+’ foreign currency rating on all of Tata Motor’s rated debt issues on CreditWatch with negative implications.

“This action follows the recent announcement by Ford that the company is in focused discussions with Tata Motors on the potential sale of Ford’s Jaguar and Land Rover business units,” said Standard & Poor’s credit analyst Mr Anshukant Taneja.

“This would be a large scale acquisition for Tata Motors that could potentially have a negative impact on the corporate credit ratings on the company, especially if it is heavily funded by debt,” he added.

Standard & Poor’s notes that both parties are entering a period of more focused and detailed negotiations and that this acquisition has to cross several milestones with no binding agreement as yet.

Tata Motors is India’s largest manufacturer of commercial vehicles and the second largest in passenger vehicles. In fiscal 2007, the company sold a total of 589,428 vehicles.

“Before resolving the CreditWatch placement, Standard & Poor’s would assess the financing structure of this potential acquisition and its impact on Tata Motors’ financial risk profile. Standard & Poor’s would also evaluate the change in the company’s business risk profile given that, with the potential acquisition of the Jaguar and Land Rover units, Tata Motors would be entering into the luxury car segment with international exposure in addition to its domestic vehicle market business,” Mr Taneja pointed out.

Last week, the Tata Motors said that “We hope both parties can reach an agreement in the forthcoming weeks, through these are complex discussions and there is still much work that needs to be done before that position is reached. We are pleased by the progress in the discussions to date.”

Although both the companies were not willing to disclose the possible acquisition price, reports indicated that the Tatas are willing to pay close to $2.05 billion for the two brands. The others in the race were domestic rival Mahindra & Mahindra and the American buyout group OneEquity.

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