Tata Sons' IPO unlikely soon, company seeking options to comply with RBI norms

Among the potential courses of action under consideration by Tata Sons, there is contemplation regarding the possibility of hiving off Tata Capital to ensure compliance.

The Tata Sons IPO buzz led to several group stocks surging up to 36 percent this week. The four best-performing stocks in the BSE500 pack were all from the salt-to-software conglomerate.

However, reports now suggest that the conglomerate's imminent listing appears increasingly improbable in the foreseeable future as the parent company of several Tata group firms is considering various avenues to adhere to the Reserve Bank of India's (RBI) norms.

Tata Sons is registered as a CIC (core investment companies) with the RBI and has been classified as an 'upper layer' NBFC, which mandates the company to follow a strict regulatory structure and requires it to list on the public market within three years of being notified.

The RBI issued a notification to this effect for Tata Sons in September 2023, which means Tata Sons is supposed to be listed on exchanges by September 2025.

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However, sources told CNBC TV-18 that the conglomerate's much-awaited listing is unlikely. Tata Sons is considering various options, including the potential separation of Tata Capital, to ensure compliance.

RBI rules state that if a 'core investment company' has assets worth less than Rs 100 crore and does not raise public funds, it can avoid being classified as a Credit Information Company (CIC) or an 'upper layer' NBFC and is not required to go for a public listing.

This exemption allows such companies to neatly sidestep the regulations. Additionally, efforts to reduce group debt are also being evaluated as part of the compliance strategy.

If the Tata Sons IPO does not happen, Tata Chemicals will lose on the potential value unlocking as it is expected to be the biggest beneficiary of the expected Tata Sons' IPO. As per the Spark Capital note released earlier this week, four Tata Group companies - Tata Motors, Tata Chemicals, Tata Power and Indian Hotels have ownership in Tata Sons.

Also Read | Tata Motors, Tata Investment, other group stocks soar up to 15% on buzz over Tata Sons IPO

However, the only realistic way to get exposure to this potential value-unlocking opportunity is via Tata Chemicals as it has a 3 percent equity stake in Tata Sons. Tata Sons' market capitalisation was estimated to be around Rs 8 lakh crore by Spark, excluding holdco discounts and optionalities.

By that calculation, Tata Chemicals' equity stake in Tata Sons could be worth as much as Rs 19,850 crore, it added.

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