Tata plans $1.7-billion rights issue for Jaguar

MUMBAI (Reuters) - India's Tata Motors Ltd (TAMO.BO) said it would raise up to $1.7 billion through three simultaneous rights issues of various securities to help fund its purchase of the Jaguar and Land Rover brands, which it expects to close by June.

Tata Motors, which plans to launch Nano, the world's cheapest car later this year, said it would then raise $500-$600 million by way of issuing securities in foreign markets, as previously planned, and was considering various options including the Tokyo Exchange.

The funds would be mainly used for the $2.3 billion purchase of the Jaguar and Land Rover brands from Ford Motor Co (F.N), which is being done through a wholly owned UK subsidiary.

"Though the initial acquisition cost will be financed through bridging loans provided by a syndicate of banks, these loans would be fully repaid through the above-mentioned capital raising schemes," India's top vehicle maker said.

The three rights issues comprise equity shares, "A" shares and convertible preference shares, it said.

Shares in Tata Motors, which has a market value of $5.7 billion, ended up 1.3 percent at 634.75 rupees in a firm Mumbai market that closed 1.5 percent higher.

While Tata has said it expects the deal to improve its balance sheet over the long term, Moody's Investors Service said in April it was reviewing the company for a possible downgrade due to considerable integration challenges and high uncertainty in the near to medium term.

Tata Motors, India's leading truck and bus maker and the country's third-biggest car maker after Maruti Suzuki (MRTI.BO) and South Korea's Hyundai Motor (005380.KS), has previously announced plans to raise $4 billion for its local and overseas plans.

On Wednesday it said it would spend about 100 billion rupees to expand manufacturing capacities and develop more than 100 new products and variants for an increasingly competitive market.

It will also continue to look at acquisitions and strategic alliances for growth in the local and overseas markets, it said.

Tata Motors, which has manufacturing and distribution ventures with Fiat (FIA.MI), said it was in discussions with the Italian firm on deals with truck maker Iveco on various options.

MARGINS UNDER PRESSURE

Separately, Tata Motors reported a net profit of 21.7 billion rupees for 2007/08, flat from the previous year.

Operating margins, a key measure of profitability, fell to 10.76 percent from 12.5 percent the previous year on sluggish sales, high raw material costs and firm interest rates, it said.

The price of steel, one of the main raw materials for auto firms, has risen by almost 50 percent on global markets this year.

"It is very difficult to say what the impact of high oil prices and high steel prices will be on the automobile industry," said Managing Director Ravi Kant.

"This is probably the most difficult environment for the auto industry that we have seen."

Tata Motors, which has about 60 percent of India's truck and bus market, will start selling later this year the Nano, priced at just over $2,500, which will face competition later from local and global rivals, including a venture of Bajaj Auto (BAJA.BO) with Renault (RENA.PA) and Nissan Motor (7201.T).

MAHINDRA PROFIT FALL

Rival Mahindra & Mahindra (MAHM.BO), India's biggest utility vehicle and tractor maker, posted an unexpected 6.4 percent fall in its fourth-quarter profit, and said it faced a challenging year ahead.

Mahindra, which lost the bid for the Jaguar and Land Rover brands, said on Wednesday net profit fell to 2.21 billion rupees ($51.6 million) in its fiscal fourth quarter to end-March.

Net sales rose to 31.48 billion rupees from 27.47 billion.

That compared with an average forecast given in a Reuters poll of analysts of a net profit of 2.53 billion rupees on net sales of 30.54 billion.

Operating profit margin fell to 10.9 percent in the March quarter from 11.5 percent, it said.

"We cannot assume that we can hold margins at this level because of the tough market conditions," Bharat Doshi, group chief financial officer, said at a news conference.

Mahindra, which makes the Logan sedan in a venture with Renault (RENA.PA), will start selling its Scorpio SUV in the United States from 2009, and is building a new plant for a venture with a unit of Navistar NAVZ.PK for trucks and buses.

Shares in Mahindra, valued at $3.7 billion, ended down 0.5 percent at 641.6 rupees. They trade at 15.4 times forecast earnings, compared with a multiple of 12.1 times for Tata Motors.

($1=42.8 rupees)

(Additional reporting by Manoj Dharra)

(Editing by John Mair, Ranjit Gangadharan, Greg Mahlich)