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TEXT-S&P rates Tata Motor's proposed snr unsecured bond BB-

(The following statement was released by the ratings agency).

LONDON, Aug 25 - Standard & Poor's Ratings Services said today it assigned its 'BB-' rating to the proposed senior unsecured U.S.-dollar convertible notes to be issued by India's Tata Motors Ltd . (Tata Motors, BB-/Stable/--). The proposed issue size is US$100 million, including an oversubscription option of up to US$10 million.

The holders of the convertible notes will have the option of converting the notes into shares at a price of Indian rupee (Re) 250.75 per share, anytime between Sept. 11, 2003, and July 1, 2008; Tata Motors also will have the option to redeem them anytime after July 31, 2006; otherwise the notes will mature on July 31, 2008. The notes will have an interest rate of 1% per annum, payable semi-annually in arrears. The rating is subject to completion of documentation and conformity of terms and conditions as presented in the preliminary offering circular dated July 24, 2003.

The issuance will be used for funding Tata Motors' capital and development expenditures, and repayment and prepayment of certain debt obligations.

"The ratings on Tata Motors are constrained by its vulnerability to cyclical changes in the Indian automobile market, weak profitability, intense competition, and a moderate capital structure," said Sharad Jain, credit analyst and director at Standard & Poor's Corporate and Infrastructure Ratings group. These weaknesses are partly offset by the company's very strong position in the Indian automobile markets, reflected in a share of more than 65% in the commercial vehicles market, and more than 20% in its target car market segments.

Tata Motors is India's largest manufacturer of commercial vehicles, and the second-largest manufacturer of passenger vehicles. In fiscal year 2003, it had revenues of Re91 billion (US$2 billion), and a net profit of Re3 billion. Tata Motors is an affiliate of the Tata group, one of India's largest conglomerates, with interests in steel, electricity, software development, chemicals, and telecommunications. Tata group had total assets of about US$10 billion and revenues of US$10 billion (about 2.5% of India's GDP).

Tata Motors' profitability has improved in the past two years, as the volume of its vehicle sales improved and operating expenses fell. The company showed a healthy profit of Re3 billion in the year ended March 2003, after losses in the previous two years. In fiscal year 2003, the company sold 107,000 commercial vehicles and 113,000 passenger vehicles, compared with 83,000 and 93,000 in the previous year. Nevertheless, capacity utilization remained modest at about 57%. Tata Motors' operating cash flows and profitability are expected to improve in the short-to-medium term, due mainly to increasing vehicle sales.