Tata Motors posted a larger-than-expected loss in the second quarter and announced a cost savings plan for Jaguar.
Jaguar
Land Rover Automotive Plc’s bond risk quadrupled this year as
the automaker plays catch-up on electric vehicles and is hit by
weakened demand in China. Moody’s Investors Service is warning of
more tough days ahead.
Moody’s
on Nov. 13 cut its rating on Jaguar, owned by India’s Tata
Motors Ltd., to Ba3, three levels below investment grade.
Jaguar’s weak operating performance “will likely continue over at
least the next 12-18 months” and it will weigh on the parent’s
performance too, it said.
Tata
Motors posted a larger-than-expected loss in the second quarter and
announced a cost savings plan for Jaguar.
Diesel
vehicles account for just under 90 percent of Jaguar’s
sales in Europe at a time when consumers are increasingly choosing
more environmentally friendly options. By 2040, more than half of all
new car sales and a third of the planet’s automobile fleet -- equal
to 559 million vehicles -- will be electric, according to a global
outlook published by Bloomberg NEF.
“JLR
has an above average exposure to diesel engines which face a very
uncertain demand outlook,” said Nicholas Harrison, credit sector
strategist at RBC Capital Markets. “JLR has fallen from being
widely viewed as a rising star a year and a half ago to now sitting
comfortably in BB category.”
Credit-default
swaps protecting Jaguar’s debt against non-payment using five year
contracts surged to 582 basis points on Thursday, a six-year high.
The cost to buy protection on Jaguar bonds was as low as 113 basis
points in August of last year.
“Jaguar
is pushing into EVs,” said Joel Levington, director of credit
research at Bloomberg Intelligence. “That is coming at a heavy
capex and R&D cost, which are key drivers behind its weakening
credit. More like they need to take a step backwards before they can
move forwards.”
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