Tata Motors raises $750 million, sending shares lower

MUMBAI (Reuters) - Tata Motors Ltd, India's largest vehicle maker, raised $750 million to repay debt by selling global depositary receipts and convertible bonds, sending its shares down nearly 7 percent to their lowest close in a month.

Tata Motors said it would use the funds to cut debt incurred in its acquisition of Jaguar Land Rover last year from Ford Motor Co. It had consolidated debt of around 240 billion rupees ($5.2 billion) at the end of June.

Shares in Tata Motors, which have rallied this year, fell 6.7 percent to close at 548.30 rupees, while the main index fell 1.2 percent. The stock had risen 5.4 percent on Thursday.

"The shares have been rising in anticipation of this deal and when the news came it fell," said Jigar Shah, senior vice president at Kim Eng Securities. "I would not read much more into it."

Tata Motors' share price has risen by nearly 3-times so far this year, though the stock fell 5.5 percent this week. Its ADRs have nearly trebled in value this year.

Tata Motors said the GDRs were issued at $12.54 each and the convertible notes, due 2014 and carrying a 4 percent coupon, were issued at a 7.5 percent conversion premium over Tata's GDR price with a yield to maturity of 5.5 percent.

The price of the GDRs was equivalent to 580.35 rupees per common share, a 1.5 percent discount to Thursday's close, a term sheet said.

"It's a very positive development for the company. But it all depends on ... whether it would be entirely used to reduce the debt," said Standard & Poor's analyst Suzanne Smith.

The fund-raising was increased from $600 million on robust investor demand, the company said, adding the proceeds would repay debt for the Jaguar Land Rover buy and go toward capital expenditure, working capital and general corporate purposes.

Chief Financial Officer C. Ramakrishnan said the funds would "augment our long-term resources, help us de-leverage and provide us with financial flexibility to pursue our strategic goals."

Surjit Arora, auto analyst at brokerage Prabhudas Lilladher, said it would only make a small dent in Tata Motors' hefty debt burden.

"Still, it will provide some relief," he said.

Analysts said the GDR issue would dilute the equity of the founders by about 5-6 percent, while the convertible bonds could double that.

At the end of the June quarter, Tata Sons, the holding company for the Tata industrial empire, and other Tata group firms held 41.4 percent of Tata Motors.

Analysts have estimated those holdings will have to be diluted by at least 15 percentage points to get Tata Motors debt-to-equity ratio closer to industry norms from its current 5 to 1.

Indian companies have been on a fund-raising spree in recent months, taking advantage of buoyant markets. Not counting the Tata Motors deal, Indian firms have raised nearly $17 billion in equity so far this year, nearly tripling the total at the same point last year, according to Thomson Reuters data.

Tata Motors' offering came a day after top engineering and construction firm, Larsen & Toubro Ltd, raised $600 million through a sale of shares and convertible debt.

The Tata Motors deal was arranged by Citigroup, Credit Suisse and JPMorgan.

(Additional reporting by Tony Munroe and Michael Flaherty in Hong Kong; Editing by John Mair and Rupert Winchester)

($1=46.4 rupees)