Ratan Tata, India's humble business king


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Apr 5, 2009
Ratan Tata, India's humble business king

Ratan Tata has a taste for buying British. But he has a battle on his hands to steer his latest purchase, Jaguar Land Rover, through the crisis

Dominic O'Connell

Ratan Tata is tired but has a smile on his face. The head of the Indian business empire that bears his family name has spent part of the day at Jaguar Land Rover’s test track in the Midlands driving top-secret new models.

He obviously likes what he has seen. Since Tata bought it last year, Jaguar has dusted off plans for a sports car – “The E-type was iconic, so we have resurrected it,” says Ratan – and accelerated development of fuel-efficient hybrids.

New models are the key to Tata’s plan for Jaguar Land Rover (JLR), which employs 15,000 people and was for years a financial millstone round the neck of its former owner, Ford.

“I would like to see us coming out of the recession with these new products in place,” says Ratan. “What would be sad – remorseful – is if the meltdown continues and we can’t get access to funds. The first thing that will happen will be that these projects will go on hold, and we will come out of the recession just as we went in. I had hoped we would come out of it a new company.”

Remorse looks more likely. As The Sunday Times revealed last year, Tata, – having failed to raise bank loans to ease JLR through a disastrous slump in sales, has asked the government for financial assistance. So far the response has been lukewarm, with even a guarantee to underwrite a European Investment Bank loan hedged with conditions that Tata doesn’t like. Unless the gulf can be bridged, the new E-type risks being parked on the drawing board.

Worse could follow. So far JLR has avoided the kind of long shutdowns and mass layoffs that have afflicted other British car plants. In the longer term, analysts have always argued JLR has one too many factories, and that the three – Halewood, Solihull and Castle Bromwich – could become two. Tata’s other UK operations are also having a tough time. Last week Corus, the steelmaker it bought in 2007 and which includes what was British Steel, said it would have to mothball its plant on Teesside, a move that threatens 3,000 jobs.

It is fitting that venerable names such as Jaguar and Land Rover have ended up with Tata, a business older than both and that has a habit of acquiring British institutions, starting with Tetley Tea in 2000.

I met Ratan 10 days ago at the St James Hotel in Westminster, before the details of the government’s demands on JLR were known and before the Corus job losses were announced. It is a very English property, and part of Tata’s Indian Hotels stable. It’s a few years since I last saw him, when he was in town for the purchase of Corus, but he looks the same – tall, a leonine face, thick hair, and perhaps now, at 71, just the hint of a stoop.

There is an old-fashioned politeness – a courtliness – about him. He is a part of India’s business aristocracy, great-grandson of Jamsetji Tata, patron saint of business on the subcontinent and one of the makers of the country. India’s first steelworks, hydro-electric plant, airline – all were Tata projects and all embodied capitalism with a distinctly socialist flourish.

When Jamsetji wanted advisers to help him design Jamshepur, the company town around his steel mills in Jharkhand, he recruited Sydney and Beatrice Webb, founders of the Fabian Society – something about which Tata might remind Gordon Brown, a current member of the society, when the tough talking on JLR resumes.

The legacy stays with Tata today. From the outside it looks like an Indian General Electric, a conglomerate with big companies across a range of industries, from steel to telecommunications. But Tata Sons, the company at the centre of the empire, does not have majority control of its operating units, and two-thirds of its shares are controlled not by the Tatas, but by charitable trusts set up by Ratan’s uncle JRD Tata.

History also rests on Ratan. It is hard to think of anyone more removed from the new wave of billionaires who have come to prominence with India’s emergence as a world power. While Vijay Mallya, the swaggering boss of Kingfisher beer, projects a Bransonesque lifestyle full of parties, booze and jetsetting, Ratan, a Parsi (a Zoroastrian sect, prominent in Indian business, that has its roots in Iran), lives alone in a modest flat in Mumbai. Despite the famous name, he has only a tiny personal stake in Tata Sons – he is an employee, not an owner-manager.

Ratan took over from JRD Tata in 1991, inheriting a sprawling group of more than 80 companies. Tata had gone into every business imaginable, often in joint ventures with foreign groups eager to get access to the Indian market.

Control was loose, with Tata Sons owning small stakes in the individual companies, many of which were quoted. “My goal at that time was to restructure so that we had a much more cohesive, smaller number of companies, and the rest we would try to divest.”

Ratan set out to change the status quo, and almost came unstuck at the first hurdle when he sold Tata’s soap operation to Lever Brothers, now Unilever.

“The reaction I had from our employees, from the media, from the shareholders, was unbelievable. I didn’t have a friend – yet I had actually made a lot of money for the shareholders, and I negotiated a no-layoffs deal with Lever. I thought I did a very honourable thing for everyone, but I got so battered publicly that I have to admit I lost my courage, and the great restructuring plans that I had for the rest of the group sort of took a back seat.”

The pace eventually picked up. Tata Sons used the sale of noncore companies to build up its stake in businesses it thought had potential to become world players – like Tata Steel (owner of Corus), Tata Motors (owner of JLR) and the telecommunications and IT services operations. “My goal was to get to about 25% or 26%, a blocking stake, in the important groups, and that is where we are now. The goal was 50% – I didn’t want 100%.”

Recession has interrupted the stake-building, and made Ratan’s recent international spending spree look ill-timed. While he was tightening his grip on Tata, he was also establishing the group on the world stage by spending big, particularly here, where he bought Corus and JLR just as the boom reached its peak.

Tata Steel paid £6.7 billion for Corus, which, when measured as a multiple of the target company’s earnings, made it the most expensive steel deal to date. A year later Tata Motors paid £1.15 billion for JLR.

The credit crunch has put paid to the steel boom. Prices have halved, and Corus has shut facilities in Britain, laying off 5,000 staff with more to come. It’s a similar story at JLR, where sales have slumped thanks to recession and a dearth of automotive finance. In April Jaguar’s UK sales were down 21% on the same month last year, an improvement on recent months. Land Rover’s were down 47%.

Ratan admits that, with hindsight, he might have gone too far too fast, but that nobody saw the crash coming. “If one had known there was going to be a meltdown then yes [Tata went too far] but nobody knew. Both the acquisitions were made, I would say, at an inopportune time in the sense that they were near the top of the market in terms of price.”

The collapse in global demand has hit India hard, too, and Tata Sons has had to step in to bail out rights issues by Tata companies. In November Ratan sent an e-mail, gleefully picked up by the press, in which he told his chief executives to “drastically reduce” spending. “We have found ourselves in a situation where the plans we had of converting short-term debt to equity, and raising equity to handle these transactions, were all in peril. That’s where we are today.”

Decoded, that means there isn’t much cash available to help Corus and JLR. The former, Ratan thinks, will be fine, helped by a slump in raw-material prices. JLR may be more problematic. It faces a cash crunch this year and hasn’t been able to raise bank loans to tide it over. Attempts to have the government underwrite loans have proved fruitless. Tata has bridled at government demands for management oversight.

Ratan says ministers should help out. “I would like to see the British government playing only one role. It controls the banks, and all I seek is the facilitation to provide access to credit on commercial terms. It’s not a bailout.

“We’re responsible for the fortunes of the company but this is a bone-dry situation in terms of access to credit. Nobody can operate on that basis unless you have large cash balances, which we don’t. My concern is that the government doesn’t appear to care about manufacturing.”

Ratan confesses that he, too, thought Britain was no longer a manufacturer.

“But when we got involved with JLR we were amazed. The whole Coventry and Birmingham area is full of high skills in design and automotive engineering. I have been pleasantly surprised at the amount of capability that exists in England – but it does not appear to be recognised.”

There is an upside to this ignorance, however. Ratan says he was amazed at how his company had been able to buy two sizeable British groups without interference. “I expected all kinds of road blocks,” he says. He also exempts Gordon Brown from criticism. “He is a very sincere person and has been very supportive.”

His views on the neglect of manufacturing will endear him to his employees, and to fellow manufacturers, who have for years argued that Whitehall has ignored industry. They may not, however, immediately bridge the gulf between the government and Tata over the future of JLR.

Inside the Tata empire

TATA was founded in 1868 by Jamsetji Tata, who had worked in the family banking business before setting up his own trading company in Mumbai.

* In 1903 Jamsetji opened the Taj Mahal hotel in Mumbai, one of the city’s most prominent landmarks and which is still the flagship of the Tata hotel business, Indian Hotels. It was at the centre of the terrorist attacks on the city last year. It reopened for business just before Christmas.

* In 1912 Tata opened India’s first steelworks, in Jamshedpur.

* The modern Tata encompasses 27 independent companies which have their own stock-market listings and boards of directors. In most cases only a minority stake is held by Tata Sons, the central group. They have combined revenues of about $60 billion (£40 billion). The seven largest are Tata Steel, Tata Motors, Tata Consultancy Services, Tata Power, Tata Chemicals, Tata Tea, Indian Hotels and Tata Communications. Two-thirds of the shares in Tata Sons are held by charitable trusts, the two largest of which are the Sir Dorabji Tata Trust and the Sir Ratan Tata Trust.

* Tata Motors, which bought Jaguar Land Rover last year, is about to start production of a “people’s car”, the Nano, pictured above. It will cost only £1,300, and more than 200,000 people in India have placed orders before production has even begun. Tata Motors says it eventually plans to sell a version of the car in Europe and America.

* Tata Steel, which bought Corus in 2007, is one of the world’s largest steelmakers. Last week Corus said it might have to lay off 3,000 workers in Britain because it had been forced to mothball its plant on Teesside.

* Tata Motors bought Jaguar Land Rover from Ford in April last year, paying £1.15 billion. In November, The Sunday Times revealed that it had opened talks with the government about financial assistance for the group.

Interview: Ratan Tata, India's humble business king - Times Online

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