As guests made their way out of the Taj hotel in Mumbai after spending New Year’s Eve in its restaurants, many stopped to study a small memorial plaque erected to commemorate the 12 staff who died protecting guests from terrorists at the end of November. If it has the same dignified simplicity as a British village war memorial, that’s probably no coincidence. Because within the Tata Group — the Taj’s owner, through a subsidiary called Indian Hotels — the ideals of duty, loyalty, courage and grit, which seem to British sensibilities to come from another era, are still very much alive.
‘There was not a single person who did not rise to do their duty,’ Indian Hotels’ patrician deputy chairman R.K. Krishna Kumar told reporters proudly on the eve of the hotel’s reopening on 20 December. Karambir Kang, the hotel’s general manager, continued to direct the hotel’s evacuation even as his own wife and two sons burnt to death in his private suite, Krishna Kumar said. And when, during those dark hours, Kang telephoned his father, a retired Indian army general, for advice and emotional support: ‘His father said, “Do as much as you can to save your family. But don’t leave your post.”’
This year, the Tatas will need every drop of that spirit as their group faces what will be one of the most difficult periods in its 140-year history.
Returning the charred wreckage of the Taj to its former glory will be a monumental task. But it is nothing next to the challenges faced by Tata Motors and Tata Steel, whose $2.3 billion acquisition of Jaguar Land Rover (JLR), and £6 billion acquisition of the Anglo-Dutch steel group Corus, have left them exposed to acutely crunch-prone elements of British industry.
‘There’s going to be a recession in the West — quite a deep one,’ concedes Alan Rosling, the sole British director at Tata and the leader of its drive to go international. ‘It’s going to be tough, and some of our businesses are going to suffer.’ Taking Corus and JLR into account, more than 60 per cent of Tata Group’s consolidated revenues will come from outside India. Indian Hotels, on the other hand, contributes only about a sixtieth of group revenues.
But the Taj still has immense symbolism for Tata. The Taj Mahal Palace and Tower hotel opened its doors in 1903, a year before the death of Jamsetji Tata, the group’s revered founder and great-grandfather of its current head, Ratan Tata. ‘It’s the only company we actually have today in the group which was set up by Jamsetji Tata,’ says Rosling.
And the dogged spirit shown by the Taj employees during the attacks is an inspiration to other group companies. Krishna Kumar is overseeing the production of a glossy book detailing the heroic acts of 140 of the 500 staff on duty for those three nights.
‘Tatas have a long history, and deep in our culture is this idea that we’ve been through difficult times before and when difficult times happen, people gather around, people work harder, people sacrifice and we get through it,’ says Rosling.
Back in 1924, at the nadir of the post-first world war steel slump, Tata Steel was only saved from bankruptcy and nationalisation because Jamsetji’s son, Dorab, pledged the entire Tata family fortune, including the 245-carat Jubilee Diamond, to secure an emergency loan from the Imperial Bank of India. The Corus and Jaguar deals represented another historic step for the group, and now look every bit as big a risk.
Rosling concedes that with India expecting at least 6 per cent growth in 2009, Tata’s internationalisation looks ill-timed. ‘With hindsight India is going to perform better than most places in the world, so therefore the bigger chunk you have in India, the better the results in the short term are going to be.’
But he says that in the long run neither Tata Motors nor Tata Steel could survive as purely domestic players. ‘You can say, “If you bought Corus today, you might have paid less.” But Corus wouldn’t have been available today because someone else would have bought it. There was an opportunity at that moment to buy the number-six steel player in the world.’
In the long run, he may be right. But for now, both acquisitions are haemorrhaging money. Tata Motors has already had to inject more than £300 million for research and working capital into JLR just six months after buying the two car-making operations, debt-free, from Ford. JLR chief executive David Smith has called the situation a ‘national emergency’, and is desperately negotiating for a government loan or loan guarantee of more than £500 million to stave off a potential collapse.
And Tata Motors has still to refinance the huge bridging loan it took out to buy the company, having shelved plans to raise the money on international equity markets. Ratings agency Moody’s, which has already cut Tata Motors’s debt two levels to ‘B2’, says it will lower it a further step if Tata Motors fails to find a way to pay off the loan within three months.
The situation at Tata Steel is little better. In the coming weeks, Corus officials will brief British workers on the bleak outlook for 2009 as part of negotiations with unions over temporarily cutting bonuses, pay and hours to reduce the company’s high fixed costs. ‘They say that they expect to lose quite a lot of money from the third quarter of last year until about June next year,’ said Jimmy Skivington, an organiser for the GMB union.
In 2002, the last sustained slump in the steel industry, Corus was losing more than £1 million a day. In October, Moody’s changed the outlook on Tata Steel’s ratings to negative, citing ‘the likely deterioration in demand in Europe and the UK in the next 18 months’. Similarly Jaguar lost about £350 million in 2006 — but that was just a small part of the £10 billion the marque cost Ford during its 18-year ownership.
So Tata’s challenges are formidable — which brings us back to the Taj. From the sea-facing promenade in front of the hotel, you can now see straight through its sixth-floor windows to the sky behind: the tiled roof, and the wooden beams that supported it, have collapsed completely. But bringing back the hotel may turn out to be the easiest of the tasks facing Ratan Tata.
The symbolic reopening of the Taj less than a month after the terrorist attacks shows the speed with which the company can move. Krishna Kumar expects to be able to bring the least damaged part of the historic building — known as the ‘heritage building’ — back into full operation by about February. The most fire-damaged wing, though, will take until late 2009 to restore.
Few are better positioned than the Tatas to carry out a heritage reconstruction. ‘They’re one group which have been very concerned about heritage,’ says Vikas Dilawari, one of Mumbai’s leading heritage architects. ‘They restored the Army and Navy Building, and I’ve helped them restore parts of Bombay House [the Tata headquarters]. When they have old buildings they know how to look after them.’
The Taj also enjoys considerable local support in India. Yogesh Lohiya, the chairman of state-owned GIC Re, which runs the Indian Terrorism Insurance Pool, personally handed Krishna Kumar a cheque for 250 million rupees on 11 December — the first instalment of its insurance claim. The Taj was covered for 7.4 billion rupees of damage, and a full year’s lost profit.
‘I don’t see any reason to believe that the process of restoring the hotel back to its conditi on will leave us out of pocket,’ said Anil Goel, Indian Hotels’ finance director. Krishna Kumar said before Christmas that a charitable fund set up to aid reconstruction had already received large donations.
Putting Tata Steel and Tata Motors back on a stable footing looks far more difficult. Both companies have moved with impressive speed to cut production, both in the UK and in India, after early warnings to their chief executives from Ratan Tata, says Rosling.
‘Because he travels so widely, he has incredible antennae,’ says Rosling. ‘He’s been saying for some months that this is going to be really tough. One of the reasons why operating companies were quicker off the block than some is because of that pressure from the chairman to say, “Think about it, wake up and see what’s happening”.’
But Corus and JLR were both bought after their managements had turned them around, so there isn’t much fat to cut. By and large, Tata has left the existing managements to continue with their plans.
JLR has launched the acclaimed Jaguar XF executive saloon and developed plans to set up dealerships in India. Tata Steel has signed mining joint ventures in Mozambique, Ivory Coast and Canada aimed at making Corus self-sufficient in coal and iron ore.
The XF has propped up sales — Jaguar was one of the few car companies globally to see rising sales in 2008 — and in the long run India will be an attractive market, but that will be far from enough to offset the wider slump in the luxury car market. And none of Tata Steel’s new mines will come into production in time to nurse Corus through the present downturn.
The loyalty of Tata staff in India is breathtaking. One mid-ranking employee at the Taj hotel donated a tenth of his savings to the hotel’s reconstruction fund, Krishna Kumar says. Tata Steel workers would probably do the same if pushed. ‘In Tata Steel, if somebody wanted to touch a part of the plant, the workers will give their lives for it. For them, the plant is like a temple,’ says a senior manager. Back in 1907, Tata Steel built a model company town around its steel plant in Jamshedpur, and it has had not a single strike since 1926.
But staff at Corus and JLR, on which Tata’s revenues are now dependent, can hardly be expected to show this kind of loyalty. Unions at JLR and Corus both broadly welcomed Tata as an owner. Derek Simpson, joint secretary of Unite, is backing JLR’s campaign for a government loan.
But 2009 will put these warm feelings to the test. Talks last month with Tata Steel unions over temporary cuts to workers’ bonuses failed to reach an agreement. This month could see relations becoming more strained.
Tata has still less reason to expect special treatment from the British government. In October, Ratan Tata wrote a letter to the Indian prime minister, Manmohan Singh, suggesting that a special fund be set up via state-controlled banks to help companies that have made major acquisitions overseas to deal with outstanding loans. To Indian commentators, that request sounded reasonable enough. But the British media has widely scorned JLR’s far more modest requests for loan guarantees of some £500 million.
This is something the Tatas should have been prepared for. A country so unsentimental about its diminished industrial base that it would rather see it fall into foreign hands than prop it up with taxpayers’ money — the trait that made Tata’s UK acquisitions possible in the first place — is hardly likely to be keen to prop up those new foreign owners.
Given that mood, business minister Lord Mandelson cannot be seen to give Tata Motors cash on a plate. ‘I am closely following the fortunes of Jaguar Land Rover,’ he said at the end of 2008. ‘The government cannot be the first call for help in these circumstances. The company’s owners have to look to themselves and their own resources.’
That said, he will probably throw JLR a lifeline in some form. Tata Group’s own resources, while substantial, are difficult to mobilise. Sadly for Ratan Tata, Dorab Tata’s heirs sold the Jubilee Diamond, placing the proceeds, along with much of the rest of the family fortune, in charitable trusts. So Ratan Tata is no billionaire owner with a giant stash to fall back on.
And Tata Sons, the holding company in which the charitable funds hold 66 per cent, can only get cash back from operating companies such as Tata Steel, Tata Motors and Tata Consulting Services (the group’s IT arm) in the form of dividends, or by selling down its stakes. The slump in India’s stockmarket makes this a bad time to do that.
Tata Sons propped up a recent Tata Motors rights issue by selling a 1 per cent stake in Tata Consulting, reducing its share to 74 per cent. But every time Tata taps into TCS, it receives only a third of the value it would have received at the peak of the market, when TCS was worth $30 billion. If the group is forced to sell more to keep Tata Steel and Tata Motors afloat, a big chunk of TCS could be gone before the economic cycle turns, losing one of the jewels in the group’s crown.
For now, Ratan Tata and the architects of the plan that bet the group’s future so heavily on JLR and Corus can only grit their teeth and hope the two UK companies make it through the next 18 months in good enough shape that the strategy starts to make sense — as it did with Tata Tea’s acquisition of Tetley eight years ago.
‘If there’s a big recession we will be affected like everyone else — we’re not magicians,’ says Alan Rosling. ‘But one thing I’m absolutely sure of is that we’re going to come out at the other end of it very competitive and relatively better than some others, so in some ways it’s an opportunity for us.’
Comments