UK minister firm on conditions for Jaguar loan

S Kalyana Ramanathan / London July 20, 2009

Reportedly insists on no loan guarantee if the government is not allowed any say in the company’s future

The British government won’t guarantee the much-awaited £340 million loan for Tata Motors’ luxury car maker, Jaguar Land Rover, unless it has a say in the company’s future plans.

Business Secretary (Minister) and head of the Department for Business, Enterprise and Regulatory Reform (BERR), Peter Mandelson, has made this clear, according to The Sunday Telegraph. The loan is from the European Investment Bank (EIB) and is urgently needed by JLR, which has been making huge losses for the past year, since Tata took control of its ownership.

Prolonged negotiations have been on between Tata Group and the UK government over the conditions the former must accept to secure the loan guarantee. According to this report, that cites its sources as “people close to the situation”, Tata is yet to give its response to this revised insistence by the UK government.

Responding to the report, a JLR spokesperson said: “Talks are continuing between the government and our parent, Tata Motors, around the loan guarantees, but we have no further comment to make.”

Ever since the loan from EIB was approved in early April, the UK government has been indicating it wants a say in JLR’s future business plans, while Tata Motors have sought complete freedom in running JLR, without any operational intervention from the state. JLR’s CEO, David Smith, in an interview to Business Standard last week, had said his company does not wish to offer a board berth to the UK government, and the loan guarantee would be accepted only on “commercial terms,” just as it would accept from any other lender.

Though the UK government is said to have come to terms with the counter-offer and not insist on a board berth, it has sought a say in participating in the business plans that Tata Group may chalk out for the revival of JLR.

Though JLR is scouting for fresh funding to smoothen its cash-strapped operations, the loan from EIB is considered vital for its future research and development, particularly in the area of developing “green cars” that can strengthen its competitiveness in the European car market for the low-emission cars of the future. Smith had also said that while JLR awaits the UK government’s guarantee, the company is close to securing fresh funding from the Indian banking system as well.

Lack of money to run its operations has already taken a toll on its balance sheet. Due to falling demand for premium and luxury cars globally, JLR had reported a loss of Rs 2,400 crore for the 10 months ending March 2009. This loss coincides with the period Tata Motors came to own it. In recent public statements, TM’s vice chairman and former managing director, Ravi Kant, had said he was hopeful of JLR’s turnaround in two years.

UK dept under fire for delay in lending to JLR

S Kalyana Ramanathan / London July 18, 2009

The Business & Enterprise Committee in the UK, appointed by the House of Commons to examine the expenditure, administration, and policy of the Department for Business, Enterprise & Regulatory Reform (BERR), has voiced its disappointment over the government’s delays in providing support to the cash-strapped Jaguar Land Rover (JLR), the Midlands-based car maker which is now a part of Tata Motors.

In a report submitted by this committee, it said: “Despite its strategic importance and although the government considered that Jaguar Land Rover was a ‘top priority’, the company told us it had proved impossible to conclude negotiations between the company and BERR about the terms of a guarantee, even though it had already received loan approval from the EIB for a substantial facility, £340 million, against our future technology investments.”

“All that is under discussion is the government’s guarantee. As on 7 July 2009, there has been no indication that there will be such a guarantee: we are astounded that it has taken so long to arrange this, particularly since the support needed is so limited,” the committee’s report said.

Though European Investment Bank (EIB) had approved a loan of £340 million for JLR to invest in “green technologies” in the first week of April 2009 to help it compete with other major European luxury car makers like BMW and Daimler, JLR has been unable to access this money for want of a guarantee from the UK government. It has been widely reported that the conditions posed by the UK government have been too stringent and may come in the way of smooth operations of the car marker.

Earlier last week, in an exclusive interview to Business Standard, JLR’s CEO David Smith said, though he was hopeful of securing this guarantee, the company was willing to do so only on commercial terms and the company will not offer the UK government a berth on its board.

“I think we all believe that the government is not very good at running companies. Anything we agree with the government or in fact any other lender should not interfere with our ability to run the company. Any agreement we do reach is commercial and gives us the ability to run the business properly,” Smith had said.

Reacting to the committee’s remonstrance at the government’s delay in providing the guarantee, JLR today said: “We welcome the committee’s conclusion that the UK industry has strong premium brands which, together with the supply chain, can lead the transition to low carbon vehicles as outlined in the recent NAIGT report. Jaguar Land Rover is playing a full role, investing over £800 million to reduce vehicle CO2 emissions and improve fuel efficiency. The report refers to the delay in drawing down the £340-million European Investment Bank loan for green technologies approved in April, which supports our investment plans. Clearly, we are eager to see this resolved as soon as possible.”

Smith was among the experts who gave evidence to the committee. Today he echoed the sense of urgency expressed in the report.

“For a year now, Jaguar Land Rover and other UK automotive exporters have been conducting business in the face of a severe recession that has stalled global economies. I fully support the Business and Enterprise Committee’s call for urgent action to allow the UK automotive industry to survive this crisis, coupled with a long term strategy to enable motor manufacturing to flourish in the UK. Environmental innovation is absolutely critical to our future and, if we are serious about a low carbon industry in the UK, we are going to have to decide to invest in it now,” he said.