Tata Power, Tata Motors plan perpetual bonds to raise $1.5 bn

MUMBAI: Hot on the heels of Tata Steel’s proposed issuance of perpetual bonds worth $500 million, two other Tata Group entities are planning to raise another $1.5 billion through this instrument, said three sources with direct knowledge of the matter.

Tata Power, the country’s largest power company in the private sector, is in talks with bankers to raise up to $1 billion through such bonds, while Tata Motors, the country’s largest automobile maker, is planning at least £350 million issuance.

Tata Power may use the proceeds for expansions and asset acquisitions, while Tata Motors is expected to trim its debt. Perpetual bonds, which pay relatively high interest to an investor through his lifetime, are treated as equity here, though it does not dilute the promoter’s shareholding.

Both the companies have been discussing the options and structure of the potential overseas bonds issuance with a clutch of European and Japanese lenders this month.

A Tata Motors spokesperson declined comment. Tata Power spokesperson too declined to comment.
Tata Motors is demanding bankers to hard-underwrite the issue, a service it has adamantly sought since the rights issue in 2008 devolved. None of the banks are yet to sign-up for hard-underwriting, which will force them to buy the bonds if they cannot arrange takers.

Tata Motors is working closely with Bank of America Merrill Lynch and Deutsche Bank, while Tata Power is yet to finalise bankers to the issue. Tata Power is likely to launch the bonds first, as the hard-underwriting component may delay the Tata Motors issuance, said bankers.

Tata Power has to refinance loans of about $300 million it had raised to finance a stake acquisition in Indonesia’s PT Bumi Resources in 2007. It is also looking for fresh coal mine acquisitions in Indonesia and Africa, and may increase its stake in the Bumi assets, including the mines PT Kaltim Prima Coal (KPC) and PT Arutmin Indonesia.

Tata Motors may use the bonds to pre-pay a £340-million loan taken under the EIB scheme in 2010, said analysts. Sources within the company said the company has already repaid the $1-billion loans outstanding from the $3 billion originally raised for the purchase of Jaguar Land Rover, which was due early this month.

The automaker’s consolidated debt as on March 2010 was about Rs 35,192 crore, while Jaguar Land Rover, the marquee brands purchased from Ford Motors in mid-2008, had loans of £1.28 billion outstanding. The funds raised will be partly used for product development at JLR, said a source close to the company.

Tata Motors requires Rs 3,000 crore for capacity expansion this fiscal and another Rs 8,000 crore for product development. It is expected to generate around Rs 14,000 crore to Rs 15,000 crore cash. The total spend this fiscal may be higher given the strong expansion plans in Africa and Latin America. The company also plans to invest more than £1 billion in JLR, to meet the growing demand for the marquee brands in emerging markets.

Tata Power quoted at Rs 1,293 on Wednesday’s trade, while Tata Motors, which shed about 15% in the past one month, closed at Rs 1,241. The DVR shares of Tata Motors are now trading around Rs 717.55. The differential among the price of the two class of shares has inspired some long-short funds in India to make leveraged bets on it narrowing.