Tuesday, August 4, 2009

S&P cuts Tata rating over Jaguar Land Rover worries

A leading global ratings agency on Tuesday downgraded the credit rating of India's top vehicle company Tata Motors, citing worries over its struggling British luxury car unit Jaguar Land Rover.

Standard & Poor's Ratings Services said it had lowered its long-term corporate credit rating on Tata Motors Ltd to 'B' from 'B+', pushing the company's ratings deeper into "junk debt" territory.

It also gave its long-term corporate credit rating a "negative outlook," meaning a possible further downgrade for Tata Motors, which recently launched the Nano, the world's cheapest car that retails for just over 2,000 dollars.

"We lowered the rating on Tata Motors to reflect the challenging operating performance at Jaguar and Land Rover for the year ended March 31, 2009, and our expectations of a similar operating performance in fiscal 2010," said Standard & Poor's credit analyst Suzanne Smith.

"This, along with a high debt level, has placed significant pressure" on Tata Motors' finances," Smith said in a statement.

The downgrade came as Britain's Observer newspaper reported that Tata was close to agreeing a financial aid package with the British government for Jaguar Land Rover (JLR) after a year of difficult negotiations.

Tata Motors announced a surprise 58 percent jump in first-quarter net profit to 5.13 billion rupees (105 million dollars) last week, helped by a change in its accounting policy.

But the company still has to announce consolidated financial results for the first quarter of the financial year that would include its loss-making JLR subsidiary.

The negative credit rating outlook "reflects our view on the uncertainty over when JLR's operating performance will improve, given the weak global auto market conditions," Smith said.

"It also factors in Tata Motors' highly leveraged financial risk profile, given extremely high debt levels," she said.

Tata bought motoring icons Jaguar and Land Rover from Ford Motor Co last year for 2.3 billion dollars. Their sales have been hit by the global downturn, which has hurt the market for luxury vehicles.

The company's vice-chairman Ravi Kant said in June that Jaguar Land Rover global sales for the 10 months ending March fell by 32 percent to 167,000 vehicles from 246,000 the previous year.

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