Most Tata Group stocks fell sharply on Friday, reversing part of the previous session’s gains, after the Shapoorji Pallonji (SP) Group proposed monetising a portion of its stake in Tata Sons for at least Rs 25,000 crore.
The development has put the spotlight back on Tata Sons’ ownership structure, the need for liquidity for the SP Group and the broader question of how Tata Sons could address its regulatory and listing-related issues.
At around 9:40 am, Tata Chemicals was the biggest loser, falling as much as 7.8%. Tata Investment Corporation declined 3.9%, TCS was down 3%, Tata Motors Passenger Vehicles fell 2.6% and Tata Power dropped 1.4%.
Tata Steel was down 0.15%, Tata Motors fell 0.48% and Tata Elxsi declined 1.09%. Tata Capital, however, bucked the trend and gained 1.1%.
The immediate trigger is the of its Tata Sons stake. Tata Trusts chairman Noel Tata tabled the proposal before the Tata Sons board on Thursday.
Under the proposal, the SP Group would sell a portion of the Tata Sons shares held by its investment companies, Sterling Investments Corporation and Cyrus Investments, with the transaction structured in two tranches over 18 months. The proposal aims to generate at least Rs 25,000 crore in gross proceeds for the SP Group.
The proposal is aimed at providing liquidity to the SP Group without Tata Sons itself immediately having to go public. The proposed transaction would involve a selective capital reduction process through the National Company Law Tribunal, with the shares valued according to their fair value under Rule 11UA of the Income Tax Rules.
The proposal itself does not mean that Tata Group companies are being sold. The stake in question is in Tata Sons, the holding company of the group.
However, the development has brought Tata Sons’ ownership structure and potential listing back into focus.
Tata Sons owns significant stakes across Tata Group companies in sectors including automobiles, steel, IT, aviation and hospitality. Any major change in the holding company’s ownership, capital structure or listing plans can therefore attract investor attention across the group.
The SP Group owns roughly 18% of Tata Sons, while Tata Trusts and affiliated trusts hold around 66%. The SP Group has been seeking liquidity from its Tata Sons holding.
The latest development comes at a time when the Tata Sons listing question has returned to the centre of attention.
The Reserve Bank of India rejected Tata Sons’ application to surrender its registration as a Core Investment Company on September 11. Tata Sons therefore remains within the Upper Layer NBFC framework and has to address the regulatory requirements associated with that classification.
On Thursday, the Tata Sons board approved N Chandrasekaran’s reappointment as executive chairman for another five-year term and decided to initiate steps towards listing the holding company, according to India Today. However, Tata Trusts has opposed the listing route and has said that all available options should be assessed.
The Rs 25,000-crore SP Group proposal offers another possible route to provide liquidity to a major shareholder without, by itself, deciding whether Tata Sons will ultimately be listed.
Most Tata Group stocks had rallied on Thursday after Tata Sons approved Chandrasekaran’s reappointment and the board moved towards exploring a listing.
That rally has now partly reversed as investors digest the separate SP Group proposal and its implications for Tata Sons’ ownership and capital structure.
The fall is therefore more about the new Tata Sons development and the uncertainty around the holding company’s future structure than a change in the underlying operations of individual Tata companies.
(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)