Tata Motors is planning to sell about 10-15% equity stake in its subsidiary Tata Motors finance to raise funds for reducing its debt, according to two persons familiar with the development. India’s largest maker of commercial vehicles said it would sell equity stakes in various subsidiaries as part of a plan to reduce the company’s Rs 24,000-crore debt.
The stake sale in the unlisted firm could likely fetch Tata Motors about Rs 200 crore, which would value the wholly-owned subsidiary at about Rs 1,300 crore to Rs 2,000 crore.
While it is learnt that Tata Capital, the group’s finance arm, could buy the stake from Tata Motors, people connected with the issue said the commercial vehicle maker has also sent feelers to other companies operating in the same industry.
“Tata Motors is committed to deleverage the company through divestments and capital raising at an appropriate time, but specifics will be announced as and when we finalise (deals) on a case-to-case basis,” a spokesperson told ET.
“Tata Motors is continuing to pursue its divestment strategy to garner financial resources to bring debt levels down,” said Mahantesh Sabarad of Centrum Broking. Tata Motors’ commercial vehicle volumes are seeing an upward trend with light commercial vehicle volumes growing 34% and overall truck volumes growing by 11% in the April to August 2009 period.
Meanwhile, Tata Capital is going all out to ramp up its consumer finance and advisory business in a bid to tap a growing market. At an event to announce Tata Capital’s future plans on Tuesday, its MD Praveen Kadle said there was “good” demand for auto, housing and personal loans, and the company expects robust demand in the third and fourth quarters of this fiscal year.
Tata Motors Finance is a specialised auto financing company formed in 2003, exclusively to finance sales of Tata Motors vehicles. The slump in commercial vehicle sales engendered by the slowdown in the Indian economy following the global financial crunch saw Tata Motors Finance reporting a net loss of about Rs 121 crore in the fiscal year ended in March, 2009. Its sales totalled Rs 1,014 crore.
Tata Motors’ plan to sell its stake in subsidiaries comes soon after unconfirmed reports earlier this week that the commercial vehicle maker proposes to raise around $400 million (about Rs 1,920 crore at current exchange rates) through global deposit shares to pare down debt. Tata Motors has not commented on these reports.
The company sold a 15% stake in HV Axles for around Rs 65 crore and about 15% in HV Transmissions for about Rs 74 crore to Tata Capital in 2008.
The stake sales are aimed at strengthening Tata Motors’ balance sheet, which has been stretched by the acquisition of premium car brands Jaguar and Land rover for $2.3 billion in June 2008. The company has close to $1.05 billion of debt remaining, out of the $3 billion bridge loan it had taken for the acquisition. It paid about $2 billion using proceeds of a rights issue, stake sales in other Tata group companies and funds raised through a non convertible debenture issue.
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