Global rating agency, Standard & Poor's, today placed the corporate rating of Tata Motors under credit watch after it was named as the preferred buyer for British marquees Jaguar and Land Rover.
Tata Motors' long term credit and foreign currency ratings of speculative grade 'BB+' have been put under credit watch with negative implications, an S&P statement said.
"This action follows the recent announcement by Ford Motor that the company is in focussed discussions with Tata Motors on the potential sale of its Jaguar and Land Rover business units," said Standard & Poor's credit analyst Anshukant Taneja. This would be a large scale acquisition for Tata Motors that could potentially have a negative impact on the corporate credit ratings on the company, especially if it is heavily funded by debt, Taneja added.
However, Standard & Poor's said that both parties are entering a period of more focussed and detailed negotiations and that this acquisition has to cross several milestones with no binding agreement as yet.
Tata Motors is the largest manufacturer of commercial vehicles and the second largest in passenger vehicles. In fiscal 2007, the company sold a total of 589,428 vehicles with revenues of Rs 366.4 billion (Rs 36, 640 crore) and net income of Rs 21.7 billion (Rs 2, 170 crore). "Before resolving the credit watch placement, S&P would assess the financing structure of this potential acquisition and its impact on Tata Motors' financial risk profile," Taneja added.
It would also evaluate the change in the company's business risk profile, as Tata Motors would be entering into the luxury car segment with international exposure in addition to its domestic vehicle market business, he added.
Recently, another global rating agency - Moodys Investor Services - had placed Tata Motors on review for a possible downgrade.
Should Tata Motors proceed with the transaction and acquire these two businesses, it will face considerable execution and integration challenges, Moody Vice-President and Senior Analyst Elizabeth Allen had said.
