JLR faces 'devastation' without government help

The company needs £500m of loan guarantees, but no cash, says Ratan Tata

By Sarah Arnott
Wednesday 25 March 2009 01:00

Jaguar Land Rover (JLR) faces "devastating" damage unless the Government stumps up £500m-worth of loan guarantees, the chairman of the parent company warned yesterday.

Ratan Tata, the head of the Indian conglomerate which bought JLR for more than £1bn last May, said in a Sky News interview that the group is not looking for a cash hand-out, but needs government backing to squeeze much-needed working capital out of the UK's frozen banking systems.

Without the guarantees, the company's massive research and development programmes will suffer, with a knock-on effect on its long-term future. "If the attitude is to see who blinks first, then the damage is going to be quite devastating," Mr Tata said. "What we have asked for is not a bailout. What we have asked for is help from the Government to facilitate commercial loans, because the banking system has come to a halt."

The group needs the money to run its day-to-day business, for its £400m-per-year research programme and for the £800m five-year product development plan. "It's impossible to find or have access to credit at reasonable rates," Mr Tata said. "We have estimated £500m to ensure we can carry through major technology projects so that we can finish the development of new models."

The company has been asking for help from the Government since before Christmas, but to no avail. The Department for Business said yesterday that it is still in talks with JLR about its long-term plans, but will not get involved in the day-to-day financing of the business. "The primary responsibility for short-term financing or longer-term restructuring rests with the parent company," a spokeswoman said.

Tata stresses that it is only asking for a loan guarantee, rather than for hard cash. But the use of UK taxpayers' money – however remotely – to prop up a foreign-owned business would be politically tricky in any situation.

In the case of JLR it would be even more problematic because the group's financial position is in part of its own making. Tata's $2.3bn (£1.6bn) acquisition was financed with a $3bn bridging loan that saddled the subsidiary with vast debts just months before car sales dropped through the floor.

Despite the conglomerate's travails in a number of areas – including the debts from its $11.3bn purchase of Corus, the Anglo-Dutch steel maker – Tata has pumped some $1.2bn into JLR since last summer to help with the cash flow needed to service its debt repayments.

Pleas from the motor industry as a whole for help coping with collapsing demand and unprecedented credit restrictions have not gone unheeded. Lord Mandelson, the Business Secretary, put together – albeit slowly, say critics – a £2.3bn loan guarantee package for a mixture of European Investment Bank and other types of lending which is just starting to take effect.

JLR is one of the major manufacturers looking closely at its eligibility under the scheme. But the funds are only accessible for the research and development of low-carbon vehicles, and cannot be used for simple working capital requirements.

The Society of Motor Manufacturers and Traders (SMMT) has pushed through a plan for car companies' finance arms to be able to access the Bank of England's £75bn asset purchase facility as a way of boosting liquidity. But efforts to widen the scope to include day-to-day credit arrangements have made no progress, and even the Bank's limited involvement so far has caused problems.

A spat broke out earlier this month between the Government and the Bank after Lord Mandelson said that negotiations over the finance scheme were moving too slowly.

At the Treasury Select Committee Inflation Report meeting yesterday, Mervyn King, the Bank's Governor, reiterated his position on involvement in specific sectors of the economy. Notwithstanding sympathy for the automotive sector, the Bank "shouldn't be in the business of deciding which industries get preferential treatment", Mr King said.

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