Tata Motors faces rising costs for Ford brands

Mumbai: Faced with rising borrowing costs as a global credit crunch deepens, India's Tata Motors Ltd is keen to close a deal to buy Ford Motor's Jaguar and Land Rover luxury brands by the end of this month.

At the same time, Tata also needs capital to help pay for the manufacture of its Nano, the world's cheapest car, due for launch in the second half of this year.

According to announcements and media reports, Tata could be raising up to $4 billion on domestic and overseas debt markets. "It's just a matter of time now ... Tata will obviously want to do the (Jaguar/Land Rover) deal by March 31 so they can account for it this fiscal," said PriceWaterhouseCoopers partner Abdul Majeed, referring to the close of the 2007/08 financial year.

"Clearly, because of the liquidity crunch, a deal now will be more expensive than they'd initially planned for."

The cost of borrowing overseas has risen 200-300 basis points since last July, analysts said, when the first reports of Tata's interest in the Ford luxury brands appeared.

"It's a staggering sum of money, which will undoubtedly put pressure on the ratings," said Anshukant Taneja, primary credit analyst at Standard & Poor's in Singapore.

Ratings agencies cautioned in January, when Tata Motors was named the frontrunner by Ford, that a large burden of debt for the acquisition could trigger a possible downgrade for the company, which already has an ambitious capital expenditure plan.

Elizabeth Allen, senior analyst at Moody's Investors Service, reiterated that view, adding "the $1 billion that Tata is looking to raise is only one piece of the puzzle".

The Ford brands acquisition is expected to cost around $2 billion, media reports have said, and Tata needs more money for other alliances and to build manufacturing capacity in India for the Nano.

Last week, Tata Motors said it planned to raise up to $1 billion in overseas and/or domestic markets. Also last week, the Financial Express said Tata mandated State Bank of India to raise $3 billion in overseas debt, and wanted the funds by April 10.