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Company deposits on comeback trail

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By PIYA SINGH in Mumbai
  • Published 1.12.08
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Mumbai, Dec. 1: Cash-strapped companies are planning to raise deposits from the public once again.

Tata Motors, which acquired British marques Jaguar and Land Rover (JLR) earlier this year for $2.4 billion, is planning to offer 10 per cent on a one-year deposit. It is offering 10.5 per cent for a two-year tenure and 11 per cent for a three-year deposit.

The public deposit scheme comes about a month after the car maker’s rights issue met with poor response from shareholders.

Tata Motors needs the money to refinance a bridge loan that it took for the JLR acquisition. The company can raise up to Rs 2,000 crore from the public under the rules of public deposit schemes.

Analysts say Tata Steel, which bought Anglo-Dutch steel maker Corus last year, is expected to follow suit. Tata Steel declined to comment on whether it plans to raise public deposits.

As the credit crisis deepens, more companies will look to come up with public deposit schemes — a fund-raising device that corporate houses used till the early nineties before the equity boom began.

Recently, Mahindra & Mahindra announced that it would be seeking public deposits to augment its working capital needs. “We are confident that the public will trust a reputed name like ours,” said Mahindra & Mahindra president (finance) Uday Phadke.

Godrej Industries is another Mumbai-based company that has put in place schemes to raise deposits at interest rates of 9 per cent for one year, 9.5 per cent for two years and 10 per cent for three years.

“Godrej Industries has always had a fixed deposit scheme. Fixed deposits are likely to be attractive in the present circumstances when people are reluctant to invest in the stock market,” said Godrej group chairman Adi Godrej.

It remains to be seen whether the Indian public will bite the bait as some of the rates that the companies are offering are lower than those given by commercial banks.

“Cash-starved companies are looking at all possible methods of financing, including those traditional means such as public deposits which have been discarded by corporate India,” says Ernst & Young director (transaction advisory services) Jayesh Desai.

Desai has a point. The Life Insurance Corporation of India has come to the rescue of several companies, including those from the Tata stable. The state-owned insurer has a cash chest of Rs 25,000 crore that it plans to use to bail out troubled Indian firms.

“Banks are restricting lending to borrowers with good reputation but stretched balance sheets. So these Indian companies are going to the public which will lend them money on the basis of brand equity,” said a banker on the condition of anonymity.