Tata Motors has been forced to scrap a planned 30 billion rupee (£368 million) rights issue that was to help finance the group's acquisition of Land Rover and Jaguar.

The Indian company, which bought the British luxury marques from Ford for £1.15 billion earlier this year, cancelled the convertible preference share issue after its share price plummeted.

It now intends to sell assets instead to raise the cash, which is needed to refinance an expensive bridge loan.

Investors welcomed the rights issue u-turn, sending shares in Tata Motors 4 per cent higher in early deals in Bombay today.

Possible divestments include Tata Motor's stake in Tata Steel, a sister business that owns Corus in the UK. The holding could raise about 20 billion rupees for Tata Motors, the company has said.

Plans for two other rights issues to raise a further 42 billion rupees remain intact.

Shares in India's largest truck maker had fallen by more than a quarter since the end of May, when the rights issues were announced. From the outset, investors reacted badly to the prospect of existing shareholders' stakes being diluted through the issue of new equity.

However, some analysts suggested that Tata had little choice after tight global credit markets made raising debt prohibitively expensive.

Costly financing has risked rubbing the sheen from Tata's first foray into the luxury car market.

The company has been forced to take out a bridge loan to fund the Land Rover-Jaguar deal and its bankers have been working hard to limit the cost of capital as the Indian group moves into the bleakest auto market conditions in years.

Sales of Land Rovers are sharply down in important markets, such as the US, in the wake of the sub-prime crisis. There are also concerns that the surging costs of raw materials may scramble Tata's plans to reap profits from its £1,250 Nano, which will be the world's cheapest car when it goes on sale this autumn in India.

Fundraising through share sales has plunged by two thirds in India to £3 billion in the first six months of the year, compared with the same period a year ago, hit by the poor performance of the stock market.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive