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Tata Motors Ltd is cashing in on the success of its Jaguar Land Rover Ltd (JLR) unit to borrow dollars as it refinances in the face of sliding domestic sales.
India’s biggest carmaker hired banks to arrange a $500 million loan facility last week, the first international fundraising since its Jaguar unit sold a 10-year bond in January. The cost of insuring the debt of Tata Motors fell 44 basis points last month, the most of any Indian company, and compared with a 56 basis point drop for Jaguar and 34 for Ford Motor Co. Tata Motors debt-to-earnings ratio has been rising since 2011.
The success of Tata Motors’ overseas luxury vehicle sales has boosted the company’s profit even as revenue from domestic brands slides. The offshore income streams make borrowing in dollars less risky for the car-making arm of Tata Sons Ltd, the country’s largest industrial group, as back-to-back increases in the Reserve Bank of India’s (RBI’s) benchmark rate make rupee financing more expensive.
“The leverage may look at bit stretched at the moment, but JLR has been supporting the earnings of the company, allowing Tata Motors to raise debt,” Hemant Dharnidharka, Bangalore-based head of credit research at SJS Markets, said in a 1 November phone interview. “Because of a back-stop support from the parent Tata Sons, this company has access to a lot more bank financing than other companies could.”