Bengaluru/Mumbai: Tata Trusts chair Noel Tata presented a Shapoorji Pallonji (SP) Group proposal to the Tata Sons board on Thursday, wherein the minority investor has offered to sell up to 3% stake back to the holding company for ₹25,000 crore.
According to an executive familiar with the matter, the SP Group has offered this as an alternative to making Tata Sons a publicly listed company—something the minority investor has demanded for long—and comes after the Reserve Bank of India (RBI) it to go public on Friday.
The Tata Sons board convened at the meeting room on the fourth floor of Bombay House at 10.30am, primarily to discuss two thorny issues: the course of action after the RBI order, and the tenure of its current chair N. Chandrasekaran. Tata presented the SP offer in the afternoon, the executive said on the condition of anonymity.
How it came about
SP Group made this offer in a letter sent last week to Farokh Subedar, a close aide to Tata, the executive cited above said. Subedar, along with Ankur Verma, group chief strategy officer at Tata Sons, and a senior SP Group representative, are part of a three-person panel to resolve issues between Tata Sons, Tata Trusts, and SP Group. The panel is believed to have met at least twice in the last 15 months and made little progress.
In its letter, SP Group asked for ₹25,000 crore for 2-3% of Tata Sons shares, which values the holding company at ₹8.3 trillion at this price. According to the executive, SP Group expects to receive this money over the next 18 months.
Tata Group has not conducted any independent valuation exercise for Tata Sons, which owns stakes in 26 listed companies and also runs privately held businesses.
The executive dismissed concerns that SP Group might withdraw its offer, since it was made before the RBI’s order on 11 September. He said a public listing would value Tata Sons at 30-35% below the total value of its businesses, meaning SP Group would need to sell that many more shares to raise the same ₹25,000 crore. This is a so-called holding company discount—where the stock market values a parent company below the combined worth of everything it owns.
“Any planned IPO is an uncertain, complex and slow process. Also, we don’t know how the value is decided or if there is a discount when Tata Sons goes public. So, you could say that SP Group’s offer might be good for them since they need money in the next 18 months,” said an executive.
Emails sent to SP Group and Tata Trusts seeking comment went unanswered.
Where’s the money?
But does Tata Sons have ₹25,000 crore to close this deal?
The group executive said Tata Sons earns about ₹30,000 crore a year from dividends, share buybacks, and money from companies that go public, and hence, paying this amount will not be a problem.
Noel, who on 11 October 2024, two days after his half-brother Ratan Tata on 9 October, has faced many challenges, including helping SP Group, which owns 18.38% and is the biggest minority investor in Tata Sons, with an exit. SP Group’s entire stake is pledged to creditors as the debt-heavy infrastructure and construction company must repay ₹3,500 crore by the end of September.
Across SP Group’s promoter and operating entities, the total debt is estimated at around ₹60,000 crore, according to multiple media reports. Some Tata Group executives believe that RBI’s order to Tata Sons to take “immediate” action shows it may have considered the potential impact of risk to the system if group defaulted on debt.
Debt trap
Despite holding a substantial minority stake in Tata Sons, SP Group is unable to cash out and settle its crushing debt. This is because following the ouster of SP Group’s Cyrus Mistry as Tata Sons chairman in 2016, it converted to a private limited company, where the board, with Tata Trusts holding wide-ranging powers, can block share transfers.
The Shapoorji Pallonji Group first became a shareholder of Tata Sons in 1965, under patriarch Shapoorji Pallonji Mistry, and over the next three decades, kept buying shares until its ownership reached 18.38%.
Mistry rarely interfered in the affairs of Tata Sons, and his quiet, assured manner gave him power inside the House of Tata, earning him the moniker the Phantom of Bombay House.
Things between Tata and SP Groups took an ugly turn after Pallonji Mistry’s younger son, Cyrus Mistry, was sacked as Tata Sons chairman by Ratan Tata in October 2016, prompting a bitter legal fight over what the minority investor alleged was wrongful termination. The Supreme Court finally ruled in March 2021 that Cyrus’s sacking was lawful. Shapoorji Pallonji died in 2022, while Cyrus died in a road accident a few months later.
Shapoor Mistry, Cyrus’s elder brother, oversees the SP Group. Incidentally, Noel’s wife, Aloo Mistry, is Shapoor’s sister.