Tata Motors’ rating raised To 'BB’

MUMBAI: Standard & Poor's Ratings Services said that it had raised its long-term corporate credit rating on India-based Tata Motors Ltd. to 'BB-' from 'B+'. The outlook is stable. At the same time, it raised the issue rating on the company's senior unsecured notes to 'BB-' from 'B+'. The rating agency raised the rating on Tata Motors to reflect the improvement in the company's capital structure following the recent equity issuance of US$750 million. It believes that the equity issuance also improves the company's financial flexibility. Tata Motors recently issued US$550 million of 'A' shares with differential voting rights and US$200 million of ordinary shares to qualified institutional buyers. The company intends to use the proceeds from the equity issuance to reduce short-term debt maturities. This is in line with the company's stated intent of improving capital structure through debt reduction. "We expect Tata Motors to largely maintain its improved operating performance," said Standard & Poor's credit analyst Mehul Sukkawala. "India operations remain robust and stable given the company's dominant position in the commercial vehicle segment and increasing sales in the passenger car segment. Sales at Jaguar Land Rover's (JLR) operations have also increased due to better demand across most regions, particularly the U.K., China, and North America." The agency expects Tata Motors' financial metrics to improve as a result of the equity issuance and sustained operating performance. It also anticipates that the company's ratio of adjusted debt to capital will reduce significantly to about 55 pc for fiscal year ending March 31, 2011, from 75 pc for fiscal 2010. In addition, it expects the company's cash flow protection measures to improve. Tata Motors' liquidity is adequate, in our opinion. As at June 30, 2010, the company had cash balance of Indian rupee (INR) 84 billion and unused credit facilities of about INR135 billion. The company subsequently also raised INR33.5 billion from the recent equity issuance. It believes that the company has sufficient funds to meet its short-term debt maturities of INR152 billion. The stable outlook reflects our expectation that the company will sustain its improved operating performance and its improved capital structure .