Jaguar Revival Cuts Tata Bond Risk More Than Ford: India Credit

The risk of holding debt in Tata Motors Ltd. (TTMT) is dropping the most among automakers worldwide as sales at its Jaguar Land Rover unit increase during a global economic slump.

The cost of five-year swaps insuring the Mumbai-based company’s bonds against non-payment has fallen 262 basis points this year, compared with declines of 124 basis points for Ford Motor Co. (F) and 74 basis points for Daimler AG (DAI), according to data provider CMA. The yield on Tata’s pound-denominated 8.125 percent notes maturing 2018 touched a record low of 6.951 percent on Aug. 15, data compiled by Bloomberg show. Second- quarter revenue rose 30 percent.

Chairman Ratan Tata is focusing on emerging economies such as China, the world’s biggest car market, after buying the U.K. luxury vehicle brands from Ford in 2008 for $2.5 billion. Jaguar Land Rover sold 86 percent more vehicles in Asia’s biggest economy last quarter from a year earlier. Standard & Poor’s raised Tata Motors’ credit rating on July 9, saying its main unit’s operating performance is expected to improve.

“Apart from western Europe, all JLR markets continue to grow, and we don’t see that the volumes are going to falter,” Mahantesh Sabarad, an analyst at Fortune Equity Broking India Ltd., said in an Aug. 14 interview. “JLR’s profitability will continue to grow, and that in turn will spur Tata Motors.”

Bond Risk

The bond risk for India’s biggest automaker by revenue has fallen faster than credit-default swaps on State Bank of India, which some investors consider a proxy for the sovereign. The cost of protecting the lender’s debt has declined 69 basis points in 2012 to 326 in New York, according to CMA, owned by McGraw-Hill Cos. Those for Reliance Industries Ltd., the country’s biggest company by market value, slid 134 basis points to 267.

The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to debt agreements. A drop signals improving perceptions of creditworthiness.

Tata Motor’s shares have advanced 32 percent this year, beating a 14 percent advance in the BSE India Sensitive Index. (SENSEX) The shares rose 0.2 percent to 235.45 rupees at the close in Mumbai. The market was closed yesterday for a public holiday.

Debasis Ray, the automaker’s Mumbai-based spokesman, didn’t reply to an e-mail seeking comment or return calls made to his mobile phone on Aug. 14 and yesterday.

Jaguar Land Rover’s sales in July rose 41 percent to 26,921 vehicles, Tata Motors said in a statement today. The sales have risen 36 percent to 110,373 since April 1, the statement said.

Borrowing Costs

Falling borrowing costs are providing financing opportunities for Indian companies. The average yield on Indian dollar bonds has fallen to 5.18 percent, from 6.83 percent at the end of last year. ICICI Bank Ltd. sold $750 million of bonds at 4.7 percent on Aug. 14 and Union Bank of India raised $350 million selling 4.625 percent dollar-denominated notes.

Ten-year rupee borrowing costs for companies rated AAA by Crisil, the Indian unit of Standard & Poor’s, declined to 9.49 percent as of Aug. 14 from 9.60 percent on April 4, the highest level in 2012. Tata Motors raised 2.5 billion rupees in May selling 10 percent bonds maturing in May 2017, according to data compiled by Bloomberg. The notes traded close to their par value on Aug. 2, according to the Fixed Income Money Market and Derivatives Association of India.

Credit Rating Raised

The yield on the benchmark 8.15 percent government debt due June 2022 rose two basis points to 8.24 percent today, according to the central bank’s trading system. The extra yield on 10-year sovereign notes over U.S. Treasuries fell two basis points to 639 basis points, data compiled by Bloomberg show.

Growth in Jaguar Land Rover’s sales volume and demand for Land Rover’s models such as the Evoque led S&P to raise Tata Motors’ credit rating by one notch to BB, its second-highest non-investment grade, with a positive outlook. Fitch Ratings affirmed its BB ranking and stable outlook on Aug. 13.

Net income rose 12 percent to 22.45 billion rupees ($406 million) in the three months ended June 30, on sales of 431.7 billion rupees, Tata Motors said in an Aug. 9 statement. The company said it suffered a one-time loss on foreign exchange of 4.4 billion rupees. The Indian currency, which declined 8.6 percent in the quarter through June in the worst performance in the region, fell 0.6 percent to 56.01 per dollar today.

Jaguar Land Rover

Jaguar Land Rover, which accounted for 64 percent of the company’s revenue, said earnings before interest, taxation, depreciation and amortization rose 45 percent to 526.4 million pounds ($826 million) in the quarter ended June 30. The unit had cash of 2.3 billion pounds, it said in an Aug. 9 investor presentation.

“The fastest growing markets will be China and Asia,” Chairman Tata said in an Aug. 10 speech to shareholders.

While China’s growth is the fastest among major economies, its 7.6 percent pace of expansion in the second quarter was the slowest in three years. Neighboring India, South Korea and Indonesia this month reported slides in their overseas sales amid the global slowdown. The euro-area economy shrank in the second quarter, European Union’s statistics office said Aug. 14.

“Everywhere the growth is slowing,” said Taina Erajuuri, a money manager at FIM Asset Management in Helsinki, which oversees about $1.2 billion of assets and holds Tata Motors shares. “China was earlier considered to be immune, but now we’re seeing growth slow there as well,” she said by telephone on Aug. 14. “Car sales are usually the first ones to be hit as customers spending power decreases.”

‘Doing Well’

Jaguar Land Rover is banking on new designs to increase sales. Evoque, the hit model that has a special edition styled by former Spice Girls singer Victoria Beckham, went on sale in September and accounted for more than 37 percent of Land Rover- brand sales last quarter.

Tata Motors said in May it would spend 2 billion pounds this year on an expansion that includes a pipeline of 40 new or upgraded vehicle models over the next five years.

“New models may help boost volume,” Juergen Maier, a Vienna-based fund manager at Raiffeisen Capital Management that oversees about $1.1 billion of emerging-market assets, said in an Aug. 9 telephone interview. “The long-term picture is in place. JLR is doing well.”

To contact the reporter on this story: Siddharth Philip in Mumbai at sphilip3@bloomberg.net

To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net; James Regan at jregan19@bloomberg.net.

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