The $62.5 billion Tata Group, which made headlines for its big ticket mergers and acquisitions in the past two years, will now “put on hold any plans for acquisitions unless considered strategically critical,” said an email from Ratan Tata to the top management of the group’s 98 companies and its elite decision making body, the Group Corporate Centre.
In this November 6 email, Tata has also directed managing directors and chief executive officers of all companies to “expeditiously finalise pending loan and funding agreements, even if they involve accepting higher interest rates”, while predicting a tough 12 months ahead.
“Some of our companies with substantial foreign operations or those which have made substantial acquisitions are already facing major problems in raising capital and establishing lines of credit for their operations,” the email stated.
Tata Steel acquired UK-based Corus Group in January 2007 for $12 billion and has resulted in Tata Steel being riddled with high debt ever since. As on March 2008, the company had total bank borrowings of more than Rs 38,000 crore, a 15-fold jump in one year.
Similarly, Tata Motors acquired marquee brands Jaguar and Land Rover (JLR) from the United States-based Ford Motor Corp in March 2008 for $2.3 billion. Now, the company's balance sheet is weighed down by JLR’s $383 million loss in Jan-June 2008 period.
When contacted, a Tata Sons spokesperson said, “The senior management of the Tata Group companies have been advised to be sensitive and conscious of the difficult financial circumstances existing today and have been requested to be proactive to focus on cash flow and conserve expenditure wherever prudently possible.”
Tata was also pessimistic of an improvement in the next one year. "Liquidity will continue to remain a major problem, accompanied by a depression in consumer demand," his email stated.
"Each of our companies needs to undertake a critical review of their cash flow requirements (and) business plans with defined strategies needed to operate in this difficult period.
"Failure to manage this crisis," he warned "could result in irretrievable positions."
Tata has also urged the management of each company and its subsidiaries to form a small management task force to put together a plan for cutting costs by January 2009 with stated time bound tasks and targets.