Analysts focus on funding and fit in Tata deal

By Sumeet Chatterjee and Hiral Vora

MUMBAI (Reuters) - Analysts welcomed the purchase by Tata Motors of Jaguar and Land Rover but voiced concern about the deal's funding and how the luxury car brands will fit into Tata's line-up of buses and cheap cars.

Tata, which is to buy the iconic brands for $2.3 billion from Ford Motor Co, in January unveiled the Nano, the world's cheapest car at $2,500, due to go on sale later this year.

"It would be interesting to see how Tata Motors will produce the cheapest car and the expensive cars together," said Piyush Parag, auto analyst at Religare Securities.

Tata Motors has announced plans to raise $4 billion of funding, which is expected to help finance the Ford deal and the manufacture of the Nano.

Analysts said the cost of borrowing could be about 100 to 150 basis points higher now than a year ago due to tough credit market conditions.

"Financing the deal would be a problem. We know that they are tying up finances but the debt portion could be as high as 70 to 80 percent," said Parag. "As a result, the interest burden will increase and stretch the company's balance sheet."

The deal with Ford is expected to close by the end of the next quarter.

"There will be a lot of pressure on Tata Motors if you see it from a one-year view. But over all if you take a three- to four-year horizon, it is positive," said Ambrish Mishra, senior research analyst at MF Global Sify Securities.