Tata Motors

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ammgS5Pc.Nuc

Summary
Tata Motor Ltd., Indian Jaguar Land Rover's Owner, seeked to raise 300 millsion by listing GDR on the Luxembourg stock exchange. . The new shares were offered at $12.54,which was equivalent to 580.34 rupee per common share. In 2008, when the financial crisis detonated, Tata motor Ltd. realized it was a great opportunity for them to expand their business as three auto big heads were suffering because of the recession. Tata purchased Jaguar at a cost of 2.5 billion from Ford Motor Inc, one of the U.S. auto big heads. Tata's action of issuing its share has taken an "advantage of surging demand for Indian Stocks". This decision will not only unload some of their heaving debt, but also provide the company with greater flexibility. Due the positive share sales incentive, Tata rose 5.5% to 589.25 Rupee on yesterday.

Connection
Tata Motor issued approximately 2 millions of shares in the market to generate new fund in shareholders' equity. This is a financing activity which will be shown in the cash flow statement. Both the bank account and retained earning section of the balance sheet will increase because of that. However, since most of this fund will be contributed toward the debt that Tata has created when they acquired Jaguar from Ford Motor, there might also be a sudden decrease in the cash account and account payable. There is no net change to the equation of Asset= Liabilities + Shareholders' equity. The accounting equation is maintained in this case.

Reflection
Tata motor Ltd. was famous for its cheap cars like the recently released $2500 nano cars. It has bought Jaguar Land Rover from Ford in 2008. Jaguar and Land Rovers are luxury and SUV, 4 *4 cars respectively. Because of the economic downfall, demand for these expensive or oil-consuming cars decrease. Tata motors bought this company because they thought when the economy gets better, demands for these cars will climb up again. Acquisition for Jaguar land rover was cheaper comparing to other period of time, but nonetheless, it is a very risky decision as the market has lots of substitutions for such vehicles and it has also created a heavy loan for them. Fortunately, their new issue of shares will ease off the pressure of this heavy loan.