BMW Tie-Up Would Make Jaguar’s Recent Bond Gains Look Small-Fry

(Bloomberg) -- Jaguar Land Rover Automotive Plc’s bonds could be poised for a rally above par if a joint-venture with
BMW AG lays the foundation for a takeover by the German carmaker.

The company’s owner Tata Group is said to have approached automakers including Zhejiang Geely Holding Group Co. and BMW as it seeks partnerships for the British automotive business, it was reported by Bloomberg earlier.

“Should Tata choose to partner with BMW, then Jaguar’s bonds could make further gains due to expected enhanced credit quality,” said Aberdeen Asset Management Plc’s global head of high-yield Steven Logan, who owns some of Jaguar’s notes. “If a joint venture or tie-up is a pre-cursor to a takeover by BMW then clearly the bonds have significant upside.”

Jaguar’s euro notes due 2026 were quoted as low as 84.8 cents on the euro a month ago but have since ticked higher amid improved results including a stabilization in its China business.

BMW is currently rated A+ by Standard & Poor’s and A1 by Moody’s, which are nine levels above those of Jaguar. Deeper ties between the British luxury brand and BMW would build on an existing collaboration to develop engines and
electric-drive technology. However, in August the German carmaker’s former chief executive officer ruled out entering equity ties with the Tata Motors division.

“Most of JLR’s negative free cash flows could be attributed to large development costs and so if JLR can share it with others, it can solve its cash flows issue and its financial risk profile would improve significantly,” said Trung Nguyen Dang, a senior analyst at Lucror Analytics Pte Ltd.

2019-11-12

By Laura Benitez