Friday, November 14, 2008

Ratan Tata: Freeze acquisitions, capex plans

Ratan Tata to group cos: Freeze acquisitions, capex plans

Mr Ratan Tata

Our Bureau

Mumbai, Nov. 12 Warning of hard days ahead, Mr RatanTata has asked all the Tata Group companies to put on hold their acquisition and capital expenditure plans.

In a letter sent to heads of the group firms and their subsidiaries, Mr Tata has asked them to drastically cut operational expenditure and improve efficiencies.

“Put on hold any plans for acquisition unless considered strategically critical and also defer non-essential capital expenditure and capacity expansion,” Mr Tata, head of the Tata group, said in the letter, prescribing a set of belt-tightening measures for the group firms to weather the financial storm that is blowing across the globe.

To shore up as much cash possible, he has told companies to finalise pending loans and funding agreements, even if they involve accepting higher interest rates.

“Some of our companies with substantial foreign operations or those which have made substantial acquisitions are already facing major problems in raising capital or establishing lines of credit for their operations,” Mr Tata said.

The Tata group had made several big ticket acquisitions overseas including Corus Steel and the iconic auto brands Jaguar and Land Rover in the UK . The group had raised large sums in debt to finance these acquisitions.

“In India also many of our companies already are or will soon face major problems in their access to credit due to the lack of liquidity in the domestic market as also their inability to effectively raise equity due to the depression in the stock market and the erosion of investor confidence,” said Mr Tata.

Despite the measures announced by various Governments, liquidity will continue to be a major problem. “This state of affairs is not likely to improve substantially over the next 12 months.”

“I believe each of our companies needs to undertake a critical review of its cash flow requirement. Business plan with defined strategies need to operate in this difficult period. Failure to manage this crisis could result in irretrievable positions.” Mr Tata has advised the top management to form task forces to prepare plans of action by early January with specific targets to face the difficult months ahead.

Source: Forward Email

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