TEXT - S&P cuts Tata Motors To 'B+' from 'BB-'; watch negative

(The following statement was released by the ratings agency)

March 25 - Standard & Poor's Ratings Services today lowered its corporate credit rating on India-based automaker Tata Motors Ltd. to 'B+' from 'BB-'. The rating remains on CreditWatch with negative implications, where it was placed on Dec. 12, 2008. At the same time, we lowered our issue rating on the company's senior unsecured notes to 'B+' from 'BB-' and also kept the rating on CreditWatch with negative implications.

The rating action follows material deterioration in Tata Motors' cash flows and related metrics on a consolidated basis, derived from an adverse operating environment, which, combined with significantly high debt levels, will affect its credit protection measures beyond those consistent with a 'BB' rating category.

The CreditWatch with negative implications reflects (1) the pending refinancing for the remaining US$2 billion of bridge loan facility, which is due on June 2, 2009; and (2) the significantly high level of short-term debt as of Dec. 31, 2008.

"The rating is likely to be affirmed if the refinancing plan is implemented," said Standard & Poor's credit analyst Manuel Guerena. "However, even after the CreditWatch resolution, the rating is likely to be assigned a negative outlook, reflecting the possibility of further weakening in the global auto market conditions."

Tata Motors' operating performance has been hit by weak global auto market conditions although that is partly offset by the general fall in commodity prices. The demand situation in India weakened post September 2008 but has recovered somewhat starting January 2009 because of increased liquidity in the vehicle finance market and the government's economic stimulus.

"Although the sustainability of this recovery is uncertain, considering the weak economic environment in India, the market, in our view, is not likely to return to the challenging levels in the quarter ended December 2008," Mr. Guerena said.

The newly launched Nano has the potential to gradually provide material benefit to Tata Motors cash flows after fiscal 2010 post the commissioning of the Gujarat plant. Jaguar and Land Rover (JLR), which have been much more severely affected globally by weak demand conditions (with the exception of the Jaguar XF model until lately), continue to register volume declines and that is expected to prevail for the rest of 2009.

The debt levels could further increase as the company is expected to have negative free operating cash flow on a consolidated basis after funding significant capital expenditure for fiscal 2009, largely toward new product development. The new products are expected to benefit Tata Motors' business only in the medium term, Mr. Guerena noted.