Short Sellers Back Off Jaguar Land Rover Bonds As Rebound Begins

(Bloomberg) -- Short sellers are easing off Jaguar Land Rover Automotive Plc as the luxury carmaker shows signs of a turnaround.

Bets against JLR have more than halved from a peak in February to $135 million across the company’s dollar, euro and sterling-denominated bonds, according to data from IHS Markit Ltd. That’s the lowest in more than a year.

Improving demand in China and a cost-cutting drive helped calm investors’ fears in recent months and JLR returned to the bond market for the first time in more than a year. The possibility of a tie-up with automakers including BMW AG or Zhejiang Geely Holding Group Co. is also boosting sentiment around the company.

“Just a few months ago, before the results, investors were extremely negative,” said Trung Nguyen, a senior analyst at Lucror Analytics in Singapore. “But now we see the business has really improved, driven by China, and the cost-cutting measures look like they’re on track.”

JLR has almost completed a 2.5 billion-pound ($3.3 billion) savings drive that includes cutting thousands of jobs worldwide, the carmaker said in October. Stabilized demand for the luxury car brand in China helped its owner Tata Motors Ltd. report a narrower-than-projected loss for the three months ended Sept. 30. The owner also got a liquidity boost from its owner Tata Sons in October, which is important to JLR because it’s expected to support its parent, according to Nguyen.

A spokeswoman for Jaguar Land Rover declined to comment on the short positions.

The company is still facing headwinds, however. Moody’s Investors Service, S&P Global Ratings and Fitch Ratings all have a negative credit outlook for JLR based on risks such as potential disruption from Brexit and the threat of U.S. tariffs on car imports from Europe.

But credit markets are showing signs that investors are increasingly convinced the company’s rebound is gaining momentum. The price of insuring JLR debt against the risk of default has plummeted to a near 14-month low of 509 basis points, down from 843 in October, according to ICE Data Services. Jaguar’s 500 million-euro bond that was issued at par last month has traded up to about 102 cents on the euro, data compiled by Bloomberg show.

“Given we see the alleviation of the acute near term risks, the focus now turns to the longer term risk from the 2-3 year mark going forward,” CreditSights analysts wrote in a note last month.

To contact the reporter on this story: Katie Linsell in London at klinsell@bloomberg.net

To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Chris Vellacott

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