Tata Sons seeks up to $1 bn funding for phone plant in Tamil Nadu

Mumbai: Tata Sons is seeking up to $1 billion in overseas loans to set up a globally scalable mobile phone and component contract manufacturing plant in Tamil Nadu that will start by making iPhone parts, said people aware of the plan.
This is part of group chairman N Chandrasekaran’s bid to woo mobile makers such as Apple to alternative production sites in India as they seek to diversify out of China, they said.

Tata Electronics, a wholly owned subsidiary of Tata Sons, will lead the initiative, beginning with iPhone casings and eventually partnering other original equipment manufacturers (OEMs) in South Korea and Japan as part of a “larger electronics ecosystem,” said one of the persons.

The partnership with Apple will be part of Prime Minister Narendra Modi’s Make in India push and will take advantage of the government’s production-linked incentive (PLI) scheme that was unveiled in August.

Tata and Apple didn’t respond to queries.

$1.5-billion Capex Plan for Project
Tata Group is looking at a total capital expenditure of $1.5 billion for the priority project through a combination of internal accruals and borrowings, said the people cited above.
Toward this end, it’s seeking $750 million-1 billion in external commercial borrowings (ECB), they said.

“This offers high growth potential for the group provided the execution is done well and by roping in top management with expertise in this area,” said a group director. “The group is identifying the right CEO to head this venture and also roping in directors from GE.”

The Tata Group and Apple are keeping details of their plan under wraps. Group insiders said Tata Electronics is keen to kick off the project by announcing the Apple partnership to showcase its capabilities.

Samsung and three major contract manufacturing partners of Apple – Foxconn, Wistron and Pegatron – are among the 16 firms that have signed up for India’s $6.65 billion PLI scheme aimed at boosting domestic smartphone production over the next five years.

Tamil Nadu has unveiled its own Electronics Hardware Manufacturing Policy 2020 targeted at increasing output to $100 billion by 2025 or a fourth of total electronic exports by that year. Tata Electronics has already been allotted 500 acres by the Tamil Nadu Industrial Development Corp. (Tidco) in Hosur.
ECB NEGOTIATIONS
Tata Group is looking to stitch together five-seven-year funding by January as it’s keen to start the project in the third quarter of next year. Negotiations on the overseas borrowings have been underway with several global banks and financial institutions. The venture is currently being spearheaded by Banmali Agrawala, a former Tata Power and GE executive.
“The financing will primarily will be in foreign currency as the lion’s share of the equipment will have to be imported,” said an executive. “The group is looking to be a key electronic component supplier to the top five OEMs of the world.”

One of the persons said Apple hadn’t yet made a firm “offtake” commitment but this could not be independently verified. There will be no equity relationship, said the people cited above.

The idea germinated during the pandemic when the group realised there was a demand-supply gap in precision engineering components not only in India but several global markets that could be tapped.

“There was a rush for making ventilators and medical equipment and also the geopolitical and trade wars involving China,” said a top executive close to the development. “This is a specialised segment which will call for huge funding to ensure high-quality supplies to large global and quality conscious players such as Apple. The Tata Sons chairman is keen that the group quickly tap this high-potential market and build scale as a top international electronics components supplier.”

Tata and Apple already have a relationship involving retail chain Croma.
Apple has been assembling some iPhone models in India for a while now. Analysts said the entry of all three of its key vendors highlights how the US technology giant is derisking its production and supply chain by diversifying manufacturing bases.

Apple has tried to lower its dependency on China by choosing locations such as Vietnam since 2017. But China is still the location for 90% of units that assemble Apple products. In 2019, 48% of Apple’s component suppliers for circuit boards, glass, cables and batteries were in China.

Apple initially set its eyes on India in 2015 but failed to find a local vendor that met its strict environmental, health, and safety standards, analysts said. Wistron was the first Apple contract maker to set up locally near Bangalore three years ago followed by Foxconn, Apple’s largest vendor. Pegatron will launch its India operations soon. Vendors such as Flextronics already supply battery power packs for phones and tablets worldwide from India.

The share of Apple in India’s mobile phone market was approximately 3.35% in July 2020, according to Statista, a data company. Apple recently opened its first online store in India.