A huge sum of $2.3 billion is by no means a small price to pay even for names as big as Jaguar and Land Rover. Tata motors is also planning to put in more money into expanding the two brands and analysts are worried that funding might be the biggest concern for Tata Motors and they might drain the company's cash flows. Most well heeled people aspire to buy a few of these fabulous cars but Ratan Tata has gone ahead and bought the company that makes Jaguars and Land Rovers. But how will the $2.3 billion dollar bill be financed. Tata Motors will borrow in the short term and use equity in the longer term to finance the purchase.
Tata Motors is planning to raise $3 bn via a short-term bridge loan and it is also likely to monetise some of its profitable subsidiaries and sell stake in group companies. Citi and JP Morgan, the lead advisors of the deal along with consortium of eight banks including SBI, BNP and Standard Chartered, is likely to contribute nearly $ 400 million each towards the loan. Analysts see significant EPS erosion anywhere between 15 - 20 per cent over next one year.They also say effective interest rate for loans will be 5.5 - 6.5 per cent.The net interest outflow could be as much as Rs 650 - 700 crore on Tata's balance sheet. Tata Motors may refinance the entire loan soon at lower interest rates and may also replace some debt with equity. But any downgrades by rating agencies may make Jaguar and Land Rover acquisition costlier
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