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Tata regretting Jaguar/LR buy?

2009-05-14 09:46

When India's Tata Group bought British luxury car icons Jaguar and Land Rover and Anglo-Dutch steelmaker Corus, the buys were
hailed as signs of the nation flexing its new global economic muscle.

Now, in an unusually frank admission, Tata Group chairman Ratan Tata has said the tea-to-vehicles group, India's oldest business
house, may have gone "too far, too fast." In fact, the purchases of both Jaguar-Land Rover and Corus have created a bigger sea of troubles for the group than anyone could have imagined, analysts say.

"Jaguar-Land Rover is in a deep hole," Paul Newton, analyst at IHS Global Insight told AFP, while Corus has idled 40 percent of
its capacity due a sharp fall in demand brought on by the global recession.

Tata paid $2.3bn for Jaguar-Land Rover in 2008. Lost in the patriotic tub-thumbing over the deal that included Indian headlines declaring
"Jaguar now is an Indian beast" were analysts' warnings that the luxury marques had been a financial sinkhole for previous owner Ford - a situation the economic crisis has only worsened.

When Tata bought Corus for $13.7bn in 2007, it was India's biggest ever foreign takeover. And the price, measured as a multiple of Corus's earnings, made it also the most costly steel takeover ever.

Both acquisitions were made "at an inopportune time in the sense they were near the top of the market in terms of price," Ratan Tata
told Britain's Sunday Times newspaper last weekend. The Tata Group is now struggling to digest both acquisitions and is saddled with debt.

"They (the Tatas) really have overstretched themselves and now are really scratching around for funding," Newton said.
The Tatas have been rushing to repay by next month $2bn borrowed to pay for its purchase of Jaguar-Land Rover, whose sales have been slammed by the downturn. Year on year, Jaguar sales fell by 21% in April while sales of Land Rover fell by 46%.

The Tatas are also seeking British government financial support to carry the brands through the recession. But the government has attached so many conditions - among them the right to veto management decisions in what critics call "backdoor nationalisation" - that the Tatas are reportedly threatening to walk out of the talks.

A Tata spokesman declined to comment on the funding issues.

For its Corus purchase, Tata Steel is seeking an easing in loan terms from creditors to weather the downturn.

There has been a "dramatic reversal apparent in (global) steel industry dynamics," said Ivan Palacios, a Moody's credit rating
analyst.

Last week, Tata said it might be forced to "mothball" a Corus plant in Teeside in England's northeast after the factory's largest customer scrapped a deal to buy 80 percent of its output.

Even Tatas' move to shake up the auto industry by rolling out the $2 000 Nano, touted as the world's cheapest car, is not expected to contribute much in the early years to the group's bottom line because of thin margins.

"Corus can be said to be suffering the downturn in the commodity cycle and... the acquisition could pay off in the long run,"
commented Indian daily Business Standard in an editorial.

But "with Jaguar-Land Rover, there are questions about whether the acquisition was a good idea in the first place."

 

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