New Issue Review : Not The Real Tata Motors 5Y 4.5% SGD

Issuer:      TML Holdings Pte. Ltd., a wholly owned subsidiary of Tata Motors Limited and with 100% ownership in Jaguar Land Rover Automotive Plc.
** TML HOLDINGS – SGD 5YR** UPDATE 1

** New SGD 5yr trade launched
** Initial Price Guidance 4.5% area
** UNRATED
** SGD Benchmark
** As early as today’s business

** Change of Control Put at 101% on:
< 51% ownership of TML by Tata Motors Ltd (Ba3/BB/BB)
< 51% ownership of Jaguar Land Rover (Ba3/BB-) by TML Holdings
** Debt Service Reserve Account to be funded with 6 months’ interest
SGD Comps:
TATAIN 4.95  05/03/23    99.50 5.01  -> SOR + 328bps
TCOMIN 4 1/4 02/01/16   101.25 3.76 -> SOR + 320bps

USD Comps:
TTMTIN 5 5/8 02/01/23  105.95 4.695 Z+323 -> YTW 2/21

Don’t swoon.

TML owns 100% of Jaguar Land Rover Automotive Plc which is a private company, rated Ba3/BB-/BB- that did a USD 500mio  10Y NC5Y issue in Jan this year at 5.625%. The bond is trading at 105-106 price range now.

Jaguar (private company) = cash cow. TML (private company) = holding company of cash cow. Tata Motors (listed company) = parent of TML.

If Jaguar were to issue in SGD, they would be looking at 4% thereabouts, using their USD bond price as guidance.

Why is Jaguar not issuing instead ?

It could be that they are quite up to their necks in debt.

Jaguar Land Rover Automotive PLC	5.625	02/01/23	500000000	01/23/13	USD	104.07	104.1
Jaguar Land Rover Automotive PLC	5.625	02/01/23	500000000	01/23/13	USD	104.989	106.3
Jaguar Land Rover Automotive PLC	8.25	03/15/20	500000000	03/22/12	GBP	113.267	114.1
Jaguar Land Rover Automotive PLC	8.25	03/15/20	500000000	03/22/12	GBP	112.614	114
Jaguar Land Rover Automotive PLC	8.125	05/15/18	500000000	05/12/11	GBP	110.297	111
Jaguar Land Rover Automotive PLC	8.125	05/15/21	410000000	05/12/11	USD	113.5	113.5
Jaguar Land Rover Automotive PLC	8.125	05/15/21	410000000	05/12/11	USD	114	115.9
Jaguar Land Rover Automotive PLC	8.125	05/15/18	500000000	05/12/11	GBP	109.996	111.3
Jaguar Land Rover Automotive PLC	7.75	05/15/18	410000000	05/11/11	USD	110	110
Jaguar Land Rover Automotive PLC	7.75	05/15/18	410000000	05/11/11	USD	109.75	110.3

And the use of the proceeds of this bond issue will be to redeem Tata Motors’ (the parent) preference shares due this year which obviously carries more interest than 4.5%. And this is TML’s maiden issue.

Words of caution

• TML being the holding company of Jaguar, is deemed subordinate to all Jaguar’s existing debt.
• Tata Motors is not guaranteeing TML’s solvency as it is only a subsidiary.
• There is a bond covenant that TML must be the major shareholder of Jaguar ie. >50% which does not prevent it from divesting 49%.
• TML and Jaguar are both private companies which means that their accounts are not public (although Jaguar has to publish their accounts on account of their bonds, there is no similar requirement for TML to do so).
• TML has capacity to borrow up to USD 3 bio so there is a lot more debt coming.

It is clear that Tata Motors is using TML as a conduit to reduce their level of leverage.

I personally do not like holding companies because they are basically shell companies with no source of income except for the shares that they own. And to complicate things, this holding company is owned by another operating company, thus the structure is operatingco-holdingco-operatingco, in terms of ownership.

However, it would seem that 4.5% is a fair enough price, using Jaguar as the proxy and adding the premium for the subordination on top of it. TML should be at least 1 notch below Jaguar’s sub investment grade rating of Ba3/BB-/BB-, which would be in the single B category, along with all the chinese HY names that out there. Tata Motors, the parent is rated Ba3/BB/BB.

I would expect this issue to be well taken up in clear demonstration of the NRI investment power here on Singapore shores. Tata Motors is the baby of the Tata conglomerate and it is running profitable, so the name sells.

Hopefully, the coupon level should hold because anything closer to 4%, you will be better off buying Jaguar’s debt ! This is a PB issue.

Suggest the strategy of buying to flip.

Leaving you with a photo of a book Tata history book that was a gift from an old friend. The Creation of Wealth, these days would appear to be through alot of debt !!

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