Mumbai, March 26: Tata Motors — the only vehicle maker in the world that now offers a choice of cars ranging from Rs 1 lakh (the Nano) to over Rs 1 crore (the Jaguar marque) — has tied up a bridge finance of $3 billion from a syndicate of banks to fund the Jaguar-Land Rover (JLR) acquisition.

At a later stage, long-term debt or equity will replace the bridge finance. At the same time, Tata Motors will be also looking to divest some of its stake in its subsidiaries.

C. Ramakrishnan, chief financial officer of Tata Motors, refused to name the syndicate of banks that had helped the company put together the money. It is believed that the State Bank of India was the lead arranger.

“The pricing (of the loan) is appropriate and competitive,” Ramakrishnan told reporters at a conference call soon after the company announced the landmark deal.

A bridge finance is usually a short-term funding where companies obtain necessary cash ahead of large expected cash flows. In the case of Tata Motors, the finance is for a period of 15 months.

Although the Jaguar-Land Rover deal is worth $2.3 billion, the excess funds have been raised to meet any contingencies or additional expenses that may arise.

The speculation is that Tata Motors may have to pay an interest rate of up to 6 per cent on the bridge finance.

Tata Motors is, however, examining a slew of options to replace the bridge finance. The company has already announced plans to raise additional long-term resources of up to Rs 4,000 crore or $1 billion by issuing appropriate securities in the foreign and domestic market. It is also mulling the option of a cheaper long-term debt.

Significantly, the company is also looking at unlocking value from its holding in subsidiary companies wherein it could divest a part of this stake.

“Tata Motors is also putting in place a divestment programme, unlocking value from some of our investments in various subsidiaries…That plan is getting finalised,” Ramakrishnan said.

According to the Tata Motors CFO, discussions with financiers for obtaining long-term debt will be held over the next few weeks and the process will be concluded before the next quarter. He added that Tata Motors would not have to inherit any debt liabilities of Jaguar and Land Rover.

Tata Motors has some profitable subsidiaries whose business models continue to be robust. HV Axles, Tata Technologies, Telco Construction Equipment, Tata Daewoo Commercial Vehicles and Tata Motors Finance Ltd are its major subsidiaries.

Speculation that Tata Motors may divest part of its stake to strategic partners in units like HV Axles and HV Transmission has been doing the rounds for quite some time now.

Analysts contend that the car maker is looking at a variety of instruments to fund the JLR buyout because it wants to limit the impact of the acquisition on its financials.

“If the company entirely takes recourse to debt, the financials will be hit. Therefore, the move to look at equity or equity-related instruments and also unlock value in subsidiaries is positive,” said an analyst.

One of the worries of analysts has been that debt taken to fund the deal will impact its balancesheet. Moreover, due to the ongoing credit crunch in overseas markets, it is also feared that Tata Motors may have to pay marginally higher interest rates to banks.

“It is feared that the debt in Tata Motors’ books will rise to around $4.2 billion from $1.2 billion,” said Vaishali Jajoo, auto analyst at Angel Broking.

After the acquisition, both Jaguar and Land Rover will be separate subsidiaries of Tata Motors. However, both will come under one holding company — Tata Motors UK Holding Company.

Therefore, JLR will be part of the company’s consolidated balancesheet.