March 5 (Bloomberg) -- Tata Motors Ltd., India's biggest truckmaker, plans to borrow $3 billion from nine banks to finance the purchase of Ford Motor Co.'s Jaguar and Land Rover luxury-car brands, according to three people with direct knowledge of the deal.

The company plans to raise the money from banks including Citigroup Inc. and JPMorgan Chase & Co., said the people, who declined to be identified because the information isn't public.

Taking out a bank loan as opposed to selling bonds is cheaper for Tata Motors after the credit default swaps linked to its debt rose to a record on concerns of a ratings downgrade. Shares of India's largest truckmaker have declined 11 percent after Ford announced Tata Motors as the preferred bidder Jan. 3.

``It may be too big a deal for Tata Motors to swallow,'' said Mumbai-based Arvind Jain, an analyst at Religare Securities Ltd. ``Tata won't be able to get outsourcing from India and is unlikely to be able to introduce Jaguar or Land Rover to the Indian market at least in the next two to three years. On top of that, pension liabilities from the acquisition could be huge.''

Tata Motors is also talking to Bank of Tokyo Mitsubishi UFJ Ltd., BNP Paribas SA, Calyon, ING Groep NV, Mizuho Financial Group Inc., Standard Chartered Plc and State Bank of India Ltd. to arrange the loan, according to the people.

Tata Motors shares gained 0.1 percent to 702.65 rupees in Mumbai today. Debasis Ray, a spokesman for Mumbai-based Tata Motors, declined to comment.

Bank Rates

Tata Motors will pay less than 2 percentage points more than the London interbank offered rate as interest and fee for the loan, the people said. About $2.5 billion will fund the cost of the acquisition and the rest will be used for working capital, the people said. Three-month Libor, a benchmark for corporate borrowing, was set at 3.01 percent yesterday.

Standard & Poor's in January said it may downgrade Tata Motors' credit ratings because the company may struggle to integrate the U.K. units while increasing its debt burden. Tata's debt is rated BB+, one level below investment grade.

Credit-default swaps on Tata Motors fell 5 basis points to 475 basis points at 4:09 p.m. today in Hong Kong, according to Citigroup prices. That means it costs $475,000 a year to protect $10 million of Tata's debt from default for five years.

The average spread, or extra yield investors demand to buy high-yield debt in Asia instead of U.S. Treasuries, rose by 193 basis points from the end of June to 370 basis points yesterday, after reaching 392 basis points on Jan. 23, according to JPMorgan's Asia Credit Index.

A basis point is 0.01 percentage point.

New Technology

Tata Motors, which in January unveiled a $2,500 car, is seeking to acquire engineering technology to compete with overseas automakers led by General Motors Corp. that are spending $6 billion to build plants and develop models in India.

An overseas acquisition would give the Indian company access to engines and design technology for cars and sport-utility vehicles that Tata Motors could use in the local market.

Tata began making cars in 1999 with the Indica hatchback, India's first locally designed and manufactured car. All the other cars the company sells are derivatives of the Indica.

Ford, the world's third-largest automaker, is selling the U.K. brands to focus on North American operations after losses of $2.72 billion last year and a record $12.6 billion deficit in 2006.

Failed Strategy

Ford is unwinding a 21-year strategy of trying to boost profit by acquiring European-based luxury brands. The U.S. automaker bought U.K.-based Aston Martin in 1987, and sold it last year. Ford purchased Jaguar in 1989 and Land Rover in 2000.

Tata Motors has 38.9 billion rupees ($964 million) of bonds and loans outstanding, data compiled by Bloomberg show.

Global sale of non investment-grade bonds plunged 76 percent to $8.8 billion this year as investors shun all but government debt, perceived to be the safest assets, data compiled by Bloomberg show.

Tata Motors's $490 million zero-coupon convertible bonds maturing in 2012 now trade at 100.6 percent of face value, down from 106.3 percent on Jan. 2, according to prices from Lehman Brothers Holdings Inc.

To contact the reporter for this story: Patricia Kuo in Hong Kong at pkuo2@bloomberg.net.

Last Updated: March 5, 2008 06:29 EST