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.
Subscribe to:
Post Comments (Atom)
Selling shares is the most common way to finance in a publicly traded corporation, but a corporation doesn't do that very often. The reason is that too much shares on the market will affect the stock price. Shareholders earn profits either by receiving dividends or by selling their shares to another investor. The stock price will directly affect shareholders' income. Transactions like this wont't have much influence on the corporation itself, but the actually owners of this corporation-the shareholders will concern the result of transactions. Because of buying shares from another company is a common investment, the chain reaction will affect the world. The bankruptcy of Lehman Brothers Holdings Inc. is a classic example.
ReplyDeleteTaylor Zhang
While keeping your shares and waiting for prices is a good investment, you never get your results until you actually sell the shares. Yes, the more time you put into a reliable stock, the better, but there is always a time you need to sell your shares. Tata, like many other corporations are doing, issued a chunk of their shares to create cash in order to pay debt. I think it is always a good move to pay off debt as soon as possible in an efficient way because you would have to pay less interest. However, in the long run, in a rapidly growing market such as India's, Tata may have waited or found an alternative to issuing their shares to the public. By the rate of the market has grown in the past few half a year, a delayed issuing of shares may have increased the price they were sold. However, it could easily work the other way if the market were to "double dip"
ReplyDelete