MUMBAI (Bloomberg) -- Tata Motors Ltd., the maker of Jaguar and Land Rover vehicles, will borrow from the public for the first time in 13 years as the credit crunch limits its ability to refinance loans used to acquire the luxury brands in June.

Tata Motors will pay as much as 11 percent annual interest on three-year deposits from the public, spokesman Debasis Ray said in a phone interview on Monday. A government bond with a similar maturity offers a 6.97 percent yield.
The Mumbai-based company needs money to replace a $3 billion bridge loan it used to fund the $2.4 billion purchase of the U.K.-based luxury units from Ford Motor Co. A global credit crunch after the bankruptcy of Lehman Brothers Holdings Inc. has cut the availability of financing for companies amid a worldwide recession.
“They are giving every source a shot,” said Ambrish Mishra, analyst at MF Global Sify Securities India Pvt. “They are running out of time” to refinance the bridge loan taken for the purchase, he said.
Banks have curbed lending worldwide because of concerns about getting their money back amid the economic slowdown. India’s overnight call money rate, or the rate at which banks lend to each other for a short term, rose to as high as 19.5 percent in October compared with an average 7.75 percent for this year. The country’s inflation rate slowed to a six-month low of 8.8 percent in the week to Nov. 15.
-------Rights offer
The public deposits plan comes after the company said in October it’s reconsidering a plan to raise as much as $600 million from overseas markets due to the global credit crisis.
Tata Motors on Oct. 20 closed a rights offering of shares to raise more than 41 billion rupees ($819 million) to help fund the purchase of the luxury auto units. The issue was subscribed after the Tata Group invested 30 billion rupees, the truckmaker’s Chief Financial Officer C. Ramakrishnan said Oct. 31. Underwriters to the issue arranged about 3 billion rupees.
“There is a liquidity crunch and companies need money,” said Amit Kasat, an analyst at Reliance Equities International Pvt. in Mumbai. “If you are not getting funds from banks, you go to public for deposits. There is a big problem for finance at Tata Group after all their acquisitions and loans. There is urgency for money.”
Tata Motors is seeking to raise $1.2 billion in loans to refinance debt from the acquisition, International Financing Review said, without saying where it got the information. The company is in talks with banks about a five-year loan that will be borrowed by its Tata Motors U.K. unit, IFR reported.
Tata Motors will pay around 600 basis points above the London interbank offered rate, the largest spread on any loan from an Indian company, IFR said.
The fundraising comes as Moody’ lowered Tata Motors’s rating by two levels to “B1,” four ranks below investment grade on Nov. 28 and said its credit outlook is negative. The downgrade may raise borrowing costs for Tata Motors. Moody’s last lowered the rating on June 3.