Tatas gun for $1-billion ‘revolver lines’ to fund European operations
Mumbai: Tata Sons is in talks with leading global banks to raise nearly a billion dollars to recapitalise some of its key businesses in Europe, said people aware of the discussions. Tata Sons, the holding company, may raise the amount through a revolving credit facility (RCF), also known as ‘revolver lines’.
Talks are on with at least half a dozen banks including Citi, ANZ, HSBC, Mitsubishi UFJ Financial Group and Standard Chartered, said the persons.
The aim is to raise five-year money at Libor plus 250-275 bps through the UK arm — Tata International UK — with a guarantee from Tata Sons, the persons added. A final decision is expected this week.
The Tata Sons spokesperson declined to comment. However, top group officials said the conglomerate had been advised to prepare a war chest of $5 billion, with $1.5 billion accessible for “urgent requirements”.
TCS DIVIDEND ADDS TO WAR CHEST
“We don’t see the need to raise that kind of money and have asked our flagship firms to take care of their own requirements as much as possible. Some businesses such as airlines may need our support, and JLR could need bigger infusions. So, we’re ensuring that we have funds accessible to us through Tata Sons subsidiaries,” he said.
The $700-million pidend payout by Tata Consultancy Services to Tata Sons in the fourth quarter of FY20 will add to the group’s war chest. Several Tata Group companies in the non-essentials segments such as Tata Steel Europe, Jaguar Land Rover, Titan, Tata Starbucks and Trent Westside are recording zero revenues in view of the ongoing Covid-19 crisis, and need liquidity infusion, officials said. While the current fund-raising is for European businesses, more money could be raised in future for Indian operations.
“Tatas’ intention is to tie up an RCF and create a pool of liquidity. But in a world where dollars are in short supply, the terms need to be beneficial for lenders as well as the borrower,” said a Tata Group lender on the condition of anonymity, as the talks are in private domain.
Going private has restricted Tata Sons’ ability to access longterm local funds, such as those from Life Insurance Corporation. In September 2017, Tata Sons received shareholder approval to convert itself into a private entity after the ouster of former chairman and shareholder Cyrus Mistry in October 2016.
“These are unprecedented and uncertain times. The Tata Group has always focused on ensuring adequate liquidity during tough times for immediate infusion of equity or loan requirements at important entities,” said a group official, requesting anonymity.
Tata Group watchers said the fund-raising would signify shortterm challenges for the various businesses that need capital infusion.
Tata Sons can raise external commercial borrowings (ECBs), as it did in the past two years for its telecom business. But in that case the money has to come to India first. Using an offshore investment vehicle makes it easier for the proceeds to be deployed overseas.
Last year, Tata Sons tried to tap the foreign loans market to raise $2 billion, but ended up raising only a fourth of that amount. In early 2018, it raised $750 million through a special Reserve Bank of India dispensation to repay lenders of Tata Teleservices. But after the change in guidelines earlier this year — that allow nonbanking financial companies (NBFCs) to tap the foreign loans market — Tata Sons, which is registered as a core investment company with the RBI, is again keen to avail of this option.
“This time, the group may get pricing advantage with interest rates dropping globally,” said one of the persons cited earlier.
“The Tata Group usually gets the best rate in the financial markets, given Tata Sons’ backing and the brand name,” said an official.
The coronavirus outbreak right after Brexit has been a double whammy for several Tata entities. Tata Steel Europe is facing acute financial pressure, and the region’s thirdlargest manufacturer of the metal is set to cut 1,250 jobs.
Last week, Tata Motors informed exchanges that JLR had temporarily suspended production at its facilities outside China.
Analysts are worried about Tata Motors’ global exposure, especially to the US and UK. Additionally, high operating leverage makes the company disproportionately vulnerable to the Covid-19 disruption. The big worry is that JLR’s equity value could shrink rapidly due to prolonged negative free cash flows. Observers said the cash burn at JLR is likely to remain intense over the next two quarters, and the turnaround programme (charted before the Covid-19 pandemic) may not be sufficient to fix it.
The Tata Motors stock has plunged since the beginning of this year, as production in key markets has come to halt owing to global lockdowns. Credit rating agencies Fitch and Standard & Poor’s have downgraded Tata Motors’ paper in recent weeks.