Tata Motors Ltd (TAMO.BO), India's largest commercial vehicle maker, said it raised $750 million by issuing global depositary receipts and convertible bonds to pay down debt taken on for its acquisition of the loss-making Jaguar and Land Rover brands last year.
Tata Motors (TTM.N), had consolidated debt of around 240 billion rupees ($5.2 billion) at end-June, largely as a result of buying Jaguar Land Rover from Ford Motor Co (F.N) for $2.5 billion.
Tata Motors shares fell as much as 5.5 percent on Friday to 555.25 rupees, underperforming a 0.4 percent drop on the benchmark Sensex .BSESN index. The price of the new GDRs was equivalent to 580.35 rupees per common share, a term sheet said.
It's a very positive development for the company. But it all depends on ... whether it would be entirely used to reduce the debt, said Standard & Poor's analyst Suzanne Smith.
The company said the proceeds would repay the debt for the Jaguar Land Rover buy and go toward capital expenditure, working capital and general corporate purposes.
Tata said earlier it was raising $600 million through the sale of GDRs and convertible bonds. It then increased the fund-raiser after robust investor demand.
Chief Financial Officer C. Ramakrishnan said the offering would augment our long term resources, help us de-leverage and provide us with financial flexibility to pursue our strategic goals.
Surjit Arora, auto analyst at brokerage Prabhudas Lilladher, said the fund-raising will only make a small dent in Tata Motors' hefty debt burden. Still, it will provide some relief, he said.
Tata Motors said the GDRs were issued at $12.54 each -- a 1.5 percent discount to Tata's Thursday close -- and the convertible notes, due 2014, carry a 4 percent coupon, and were issued at a 7.5 percent conversion premium over Tata's GDR price with a yield to maturity of 5.5 percent.
Analysts said the GDR issue would dilute the equity of the founders by about 5-6 percent, while the convertible bonds could double that.
At the end of the June quarter, Tata Sons, the holding company for the Tata industrial empire, and other Tata group firms held 41.4 percent of Tata Motors.
Analysts have estimated their holding will have to be diluted by at least 15 percentage points to get its debt to equity ratio closer to industry norms from its current 5 to 1.
Indian companies have been on a fund-raising spree in recent months, taking advantage of buoyant markets. Not counting the Tata Motors deal, Indian firms have raised nearly $17 billion in equity so far this year, nearly tripling the total at the same point last year, according to Thomson Reuters data.
Tata Motors' offering came a day after the country's top engineering and construction firm, Larsen & Toubro Ltd (LART.BO), raised $600 million through a sale of shares and convertible debt.
The Tata Motors deal was arranged by Citigroup (C.N), Credit Suisse (CSGN.VX) and JPMorgan (JPM.N).
(Additional reporting by Tony Munroe and Michael Flaherty in Hong Kong)
(Editing by Ranjit Gangadharan and Ian Geoghegan)