Tata Plans to Fund Acquisitions by Raising $1 Billion

By Mike Caggeso
Associate Editor

Indian automotive titan Tata Motos Ltd. (TTM) plans to raise as much as $1 billion by selling securities, in an effort to partly fund its acquisitions. 

At the top of that list of acquisitions is Tata's pending purchase of luxury brands Jaguar and Land Rover from Ford Motor Co. (F). Bloomberg reported, citing three sources close to the deal, the company might need $3 billion in loans to fund the purchase. 

Tata also needs capital to build the "world's cheapest car," the $2,500 Nano. Demand for the Nano is sweltering, even though it has yet to be sold. Tata also plans on selling a more upscale version of the Nano in Europe.

"The Nano will address global markets in due course but when it will do so has not been decided," Ratan Tata told an audience at the Geneva Auto Show, the Times of India reported

And that's just Tata's short-term plan.

On top of those billion-dollar deals and operations, Tata Group Chairman Ratan Tata recently said he would like to buy a stake in luxury sports car Ferrari, a unit of Torino, Italy-based Fiat S.p.A (OTC:FIATY). 

But each of these short-term, high-profile moves offer a great view at how Tata Motors is going to supply its emerging domestic demand for different kind of automobiles.

China and India are home to 2.5 billion people, nearly half the world's population, and each has a growing consumer class moving into the automotive market. Yet their labor costs are and will remain a small fraction of those in the United States, Japan or Germany.

At the same time, because of their size, India and China will retain important economies of scale in their domestic markets over other countries with similarly low-wage costs. That suggests that more of the world automobile industry will migrate to those two countries in the next 25 years.

Investors in Indian and Chinese automobile manufacturers are likely to make a lot more money than buyers of Ford, General Motors Corp. (GM) or even Toyota Motor Corp. (TM).

Hundreds of millions of people are forming a new middle class in those countries. And in the process, they are making their first big purchases of items - such as cars - that Americans often take for granted.

And with luxury brands Jaguar and Land Rover and the über-affordable Nano [and accompanying advertising blitzes], Tata is trying to be the name that first comes to mind for both classes of auto consumers.

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