India Tata Motors shares trip on rights issues plan

MUMBAI, May 29 (Reuters) - Shares in Tata Motors (TAMO.BO: Quote, Profile, Research) (TTM.N: Quote, Profile, Research) fell nearly 7 percent on Thursday on concerns about its proposal to raise $1.7 billion from rights issues to help fund its purchase of Ford Motor's (F.N: Quote, Profile, Research) Jaguar and Land Rover.

The top truck and bus maker in India said on Wednesday it would raise 72 billion rupees from three rights issues comprising equity shares, "A" shares with limited voting rights and convertible preference shares to help fund the acquisition.

On completion of the rights issues, Tata Motors plans to raise a further $500-$600 million from an overseas equity issue, it said.

The Ford brands purchase, which is expected to be completed by end-June, will give Tata Motors a range that includes luxury marques as well as its own Nano, possibly the world's cheapest car.

But analysts say the purchase will not contribute to Tata Motors' profits in the near term, while the rights issues will result in a dilution of earnings per share.

"While we had factored a mix of debt and equity resources, the company has announced a predominantly equity route for its immediate funding needs," said Ramnath S, auto analyst at IDFC-SSKI Securities, which is maintaining its "neutral" rating on the stock.

"We estimate this to lead to a dilution of 26 percent on the fully diluted equity capital over the next two years... we see a downside of 21 percent to our EPS estimate for FY09 and FY10."

Also, pending disclosure of detailed financials of Jaguar and Land Rover, there is an assumption of no profit contribution to Tata Motors in the near term from the purchase, he said.

Shares in Tata Motors fell as much as 6.9 percent to 591.1 rupees, its lowest level in more than four months, and were trading at 595.95 rupees at 0630 GMT.