Have your cake and eat it too: How Tata can save JLR without selling stake

Had holding company Tata Sons Ltd. been a publicly traded firm, it could have raised equity relatively easily to help tide JLR over.

India’s Tata Group should treat the speed bump at Jaguar Land Rover as a timely memo: The $102 billion salt-to-software conglomerate can no longer put off listing its closely held parent.

UK-based Jaguar Land Rover Automotive Plc is burning cash on electric-vehicle technology just as the double whammy of a Chinese auto slowdown and Brexit threatens margins and sales. At average cash burn rates of 670 million pounds ($882 million) a quarter, the British carmaker may struggle to make it through another year, my colleague Anjani Trivedi wrote last month after it took an asset impairment charge of 3.1 billion pounds.

(Business Standard)

Had holding company Tata Sons Ltd. been a publicly traded firm, it could have raised equity relatively easily to help tide JLR over. Instead, Tata Motors Ltd., which acquired JLR in 2008, is exploring strategic options including a sale of a stake in the UK unit, Bloomberg News reported. Although Tata Motors says there’s “no truth to the rumors,” the bond market was a little relieved.

Investors’ concerns haven’t fully dissipated, and that shows the problem with the sprawling Tata Group’s structure. In the current scheme of things, the holding company and its 66-per cent owners — who happen to be charitable trusts — depend on payouts from software services provider Tata Consultancy Services Ltd. as well as Jaguar Land Rover to keep the empire ticking.

The insufficiency of those dividends became a sore point in a 2016 boardroom battle between patriarch Ratan Tata and Chairman Cyrus Mistry, who was abruptly ousted after less than four years. Borrowing on the strength of operating companies’ cash flows has a limit. Next year will see a record $17.5 billion of debt mature, according to bonds and loans data compiled by Bloomberg. The conglomerate must step up investment in order to generate more free cash.

Last year’s $5 billion purchase of bankrupt Bhushan Steel Ltd., which supplies metal to auto and appliance makers, is a step in that direction. The move helps group boss Natarajan Chandrasekaran cut Tata Steel Ltd.’s reliance on a less-than-rewarding construction industry.

Still, it’s Jaguar Land Rover that should worry him. JLR has avoided investing in entry-level crossovers — which account for a quarter of sales at rivals BMW AG and Daimler AG’s Mercedes-Benz — because of its expensive focus on electric vehicles, as Deepesh Rathore, analyst at Emerging Markets Automotive Advisors, said in a Bloomberg Television interview.