S&P downgrades Tata Motors rating at critical time

India's largest vehicles maker, Tata Motors, had its credit rating downgraded by Standard & Poor's (S&P) yesterday just as it was trying to secure loans and guarantees from commercial banks in India and the UK as well as from the UK government to keep its UK subsidiary Jaguar Land Rover (JLR) afloat.

S&P downgraded Tata Motors to 'B'  from 'B+' yesterday and removed its ratings from CreditWatch in light of the high debt incurred by the vehicle maker.

"We lowered the rating on Tata Motors to reflect the challenging operating performance at JLR for the year ended March 31, 2009, and our expectations of a similar operating performance in fiscal 2010. This, along with a high debt level, has placed significant pressure on Tata Motors' consolidated financial metrics," said S&P credit analyst Suzanne Smith in a statement.

The downgrade comes at a critical time for Tata Motors, which is in talks with State Bank of India (SBI) for a counter-guarantee to the guarantee it is seeking from the UK government on a loan for its JLR unit, which is struggling to keep the 15,000 jobs at the UK from being redundant.

''The negative outlook reflects our view on the uncertainty over when JLR's operating performance will improve, given the weak global auto market conditions. It also factors in Tata Motors' highly leveraged financial risk profile, given extremely high debt levels, including a high level of short-term debt, even after it refinanced a bridge loan,'' the S&P report said.  

S&P has also lowered the rating on Tata Motors' senior unsecured notes to 'B' from 'B+' and removed the ratings from CreditWatch with negative implications. S&P had placed the ratings on Watch in December, and again kept it unchanged in March 2009.
 
The US rating major also said Tata Motors' plans for further divestment and fresh capital-raising face "execution risk."