The next year and a half will be key for Tata Motors Ltd. as scrutiny of its debt metrics builds amid expectations the performance of its subsidiary Jaguar Land Rover Automotive Plc will underwhelm.
S&P Global Ratings cut Tata Motors’s long-term rating deeper into junk, the second downgrade for the Indian automaker in five months, citing headwinds for Jaguar Land Rover in some of its key
markets. Leverage for the Mumbai-based company may deteriorate over the next 12 to 18 months due to the weaker-than-expected performance of the European subsidiary, S&P said.
Jaguar Land Rover’s bond risk more than quadrupled this year as the automaker faces uncertainty in Europe over its diesel vehicles and Brexit as well as weaker demand in China.
Tata Motors posted a larger-than-expected second-quarter loss and has said JLR will deliver cost and cash flow improvements of $3.2 billion over 18 months. Brexit will hurt Jaguar Land Rover’s profit margins, Raj Kothari, head of trading at Jay Capital Ltd. in London, said.
“The good reputation of Tata Group cushions this downgrade, though we will see an impact in the pricing for the company’s bonds, with spreads on the US dollar notes likely to widen.”
S&P lowered Tata Motors’s long-term issuer credit rating and long-term issue rating on its US-dollar-denominated senior unsecured notes to BB- from BB.
The automaker’s rating remains on credit watch with negative implications given uncertainties around Brexit and will be revisited once the outcome for the UK move is clearer, S&P said. S&P previously cut its rating on the automaker in July.