Tata Motors has bought time in its efforts to refinance the $3bn of short-term debt it borrowed to buy Britains Land Rover and Jaguar marques through an innovative scheme to sell its new car, the Nano.
India's largest automotive group said it had received 203,000 pre-paid orders worth Rs25bn ($507m) for the Nano, the world's cheapest car, which it put on sale for a 16-day booking period which ended on April 25.
It will start delivery of the cars in July and has committed to meeting only half of the orders by the end of 2010, alleviating a liquidity crunch as it tries to complete the refinancing, which is due next month.
"This is fewer than the 500,000 orders I expected. But of course, any money at this time is good - this will help Tata Motors manage its liquidity situation," said Apurva Shah, head of research at Mumbai-based brokerage Prabhudas Lilladher.
Among India's large corporates, Tata Motors is one of the most hard-pressed after it completed its $2.4bn acquisition of Ford's Land Rover and Jaguar marques in the middle of last year, just before the credit crisis struck India.
Standard & Poor's in March 'downgraded the company's credit rating, citing its "inadequate liquidity position", with sales plunging at home and overseas.
"The automotive sector is in a complete mess worldwide and if the Tata's only had a sound domestic business it would have been all right," said one person familiar with the company's refinancing efforts.
Tata Motors is planning to refinance its bridge loan with up to $1bn from domestic markets and another $1bn from international banks. Tata earlier refinanced one-third of the $3bn loan through a rights issue that was shunned by investors and was mostly picked up by the company's parent investor, Tata Sons.
Although it will not help with the balance sheet, the liquidity provided by the Nano orders will boost Tata's working capital while it casts around for new financing options.
Tata has promised to deliver only 100,000 Nanos by the end of next year. The remaining 103,000 Nano orders will be fulfilled as soon as possible after 2010. The group is holding a lottery to allocate the first round of 100,000 orders.
It is offering attractive interest rates to those who miss out on the first round to persuade them not to withdraw their orders.
The scheme effectively means buyers of the Nano are also playing the role of fixed depositors.
Copyright: The Financial Times Limited 2009
