Moody's downgrades India's Tata Motors after Jaguar purchase

Global credit ratings agency Moody's downgraded Tata Motors Tuesday, a day after India's top vehicle maker said it sealed its 2.3-billion-dollar purchase of British luxury icons Jaguar and Land Rover.

Moody's Investors Service cut its so-called "corporate family rating" for Tata Motors Ltd (TML) to Ba2 from Ba1, which was already one notch below investment grade.

Corporate family refers to a company's ability to honour all of its financial obligations.

The purchase, part of Tata's bid to expand its reach beyond Asia, capped months of talks with Ford Motor Co., which sold the brands to focus on turning around its loss-making North American operations,

"The rating change reflects the considerable challenges TML will face in successfully integrating such a large operation, which only recently turned profitable, and the immediate impact on TML's financial profile," said senior Moody's analyst Chris Park in a statement.

Analysts say Jaguar and Land Rover sales have been under heavy pressure this year due to the global economic downturn.

They also have questioned whether Tata will do better in plugging what was a financial sinkhole for Ford, which received less than half of what it paid for the two prestige marques after investing billions of dollars to turn them around.

"TML's future consolidated performance will be predicated on whether JLR (Jaguar Land Rover) can both sustain its improved profitability and contribute positively to TML," Moody's analyst Park said.

On the positive side, Tata, whose vehicle line-up also includes the world's cheapest car, the 2,500-dollar Nano -- due to roll off assembly lines later this year, will make a big technological leap by gaining access to the sophisticated engines of Land Rover and Jaguar, analysts say.

The deal includes all intellectual property rights, manufacturing plants, two advanced design centres in Britain and a worldwide sales network, Tata Motors said in a statement Monday, announcing it had completed the acquisition first agreed in March.

Tata plans to fund the purchase by raising up to 1.7 billion dollars through three securities rights issues. It also aims to raise up to 600 million dollars from a foreign equity issue.

However, it is raising money at a time when global financial turmoil is making investors shun all but the safest financial bets.