Tata Group, India's most venerated conglomerate, is facing what could be the trickiest financial challenge of its 140-year history.
Some of the group's flagship companies are strapped for cash, thanks to slumping business and an ill-timed buying spree. The group's parent, Tata Sons, has offered some help -- like spending $475 million to boost its stake in Tata Motors last year. But, as a private company, it is hard to know how much capacity it has to do more.
The value of Tata Sons' holdings in the group's 27 listed companies has halved in less than a year, to under $25 billion. That is a problem, given that one way Tata Sons raises cash is by offering up its equity stakes as collateral. On Monday, Tata Steel, whose shares are down 76% in a year, said Tata Sons has pledged 13.2% of the company as collateral against borrowings.
The cash crunch is most acute at Tata Motors, with $2 billion of debt from the acquisition of Jaguar Land Rover due by June, and cash on hand of only about $100 million. The company needs its banks to roll over the loan and has no contingency plan.
Tata Sons could once rely on its privileged standing among investors both within and outside India, but as the crunch deepens, even that stellar reputation is on the line.
Source: Uday Khandeparkar- Dow Jones
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