Press Report : Jaguar Land Rover hopes rise for Government loan

Marc Reeves, Editor, Birmingham Post, 3rd August, 2009

A distinct thawing in relations between Tata and the Government and an improvement in the Indian motor giant’s credit rating have raised the prospect of a deal for Jaguar Land Rover as early as this week.

The Government has removed deal-breaking conditions from the 10-month-old negotiations and is said to be “desperate” to conclude the process. Sources close to Tata say demands for a Government seat on the JLR board and a veto on redundancies were removed after the Treasury became more confident in the finances and strategy of the Indian conglomerate.

Moreover, commercial banks, heartened by Tata Motors’ increased credit rating following better than expected profits last week, are now expected to guarantee in full a £340 million investment in JLR by the European Investment Bank – a deal that had been dependent on UK Government backing.

These moves could mean all that remains to be agreed is a Government guarantee for a commercial loan of £175 million for working capital – which in turn would be backed by secondary commercial guarantees that ensure risks to taxpayers’ money are all but eliminated. It is thought this decreased risk has persuaded the Treasury to give the green light to the deal, and talks are ongoing this week.

Moreover, commercial banks, heartened by Tata Motors’ increased credit rating following better than expected profits last week, are now expected to guarantee in full a £340 million investment in JLR by the European Investment Bank – a deal that had been dependent on UK Government backing.

However, there remains a lot of detailed work to be done with commercial lenders, and sources close to Tata are dampening speculation of an immediate conclusion to the saga.

Tata Motors first approached the Government for help in September 2008, as the credit crunch saw normal commercial funding streams dry up for JLR. Tata, which had bought JLR from Ford just five months earlier, originally needed the Government to underwrite up to £450 million of loans to fund normal working capital requirements.

At a time when car makers across the globe are struggling to remove fixed costs and become better equipped to weather economic downturns, Tata is demanding that JLR can break even when it is running at as little as 50 per cent of capacity.

Volume plants in the UK and US run at an average of 75 per cent, and lowering capacity break even points is seen as key to the survival of the struggling US giants Ford and GM.

[Source: Birmingham Post]

Clive Goldthorp

About the Author:

Clive claims that his interest in the BMC>MG story dates back to his childhood in the 1960s when the family’s garage premises were leased to a tenant with an Austin agency. However, back in the 1920s and 1930s, his grandmother was one of the country’s first female Garage Proprietors so cars probably run in his genes! Admits to affairs with Alfa Romeos, but has more recently owned an 06/06 MG TF 135 and then a 15/64 MG3 Style… Clive, who was AROnline’s News Editor for nearly four years, stood down from that role in order to devote more time to various Motor Racing projects but still contributes articles on as regular basis as his other commitments permit.

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