Tata Capital rights issue at nearly one-third the unlisted price

Tata Capital rights issue at nearly one-third the unlisted price

IPO-bound Tata Capital is set to roll out its rights issue tomorrow (July 4) at Rs 343 per share, according to its fund-raise documents. The company, which is preparing to raise $2 billion (Rs 17,200 crore), has valued its rights issue 2.75 times lower than its share price in the unlisted market, which was Rs 945 on June 2.

According to sources, Tata group’s flagship non-bank is likely to utilise the proceeds to clean up its books post the amalgamation with Tata Motors Finance.

Per the issue documents accessed by Moneycontrol, the IPO is, “To augment the long-term resources of the company for its financing activities and to meet the regulatory ratios as prescribed by the Reserve Bank of India. Also, the funds raised through this issue may be used for investing in subsidiaries, repayment of debt, and / or for redemption of the preference shares of the Company.''

It is also learnt that the issue may have been priced thus to dampen expectation from Tata Capital shares in the unlisted market.

An email sent to the company seeking clarity on whether the fund-raise was to clean up some of the debt acquired on account of the merger with Tata Motors Finance and rework the share price ahead of the IPO remained unanswered till publication.

The final approval from the National Company Law Tribunal (NCLT) for the merger of Tata Motors Finance with Tata Capital came through on May 9. Tata Motors Finance’s loan book as on September 30, 2024, stood at Rs 37,961 crore, and its gross non-performing assets (NPA) stood at 6.9 percent.

On the other hand, Tata Capital’s loan book in FY25 stood at Rs 1.98 lakh crore, and its gross NPA stood at 2.33 percent, up from 1.71 percent in FY24. “Tata Capital plans to get it asset quality to pre-merger levels before going public, and the rights issue is aimed at that,” said a senior executive who did not want to be named.

Interestingly, this is the second time in 2025 (calendar year) that Tata Capital is rolling out a rights issue. In March this year, the company raised Rs 1,504 crore through a rights offer priced at Rs 281 per share. The upcoming issue is priced at 22 percent premium to the earlier fund raise.

Grey market premium

From Rs 1,075 in early June in the unlisted market, the share price of Tata Capital has seen a 14 percent correction in recent weeks. Experts attribute this partly to the recent listing of HDB Financial Services. On June 20, when HDFC Bank’s non-bank subsidiary HDB Financial announced its price for the initial public offering at Rs 700 – 740, it was at about a 60 percent discount to the prevailing grey market rate of around Rs 1,200 a share.

“Tata Capital’s grey market price also witnessed some correction after HDB announced its price,” said an investment banker, adding that the rights issue, which will close on July 13, can also be considered a pre-IPO round of funding aimed at price discovery.

“While it’s not possible to predict the final price Tata Capital may seek, for investors already holding unlisted shares of the company the rights issue price may set a somewhat realistic expectation,” said the investment banker quoted above.

“Going by recent IPOs in the last two–three years, the premium between the IPO and pre-IPO price has mostly been in the 30–50 percent range,” said another banker.

To be sure, active trading of Tata Capital shares in the grey, or unlisted, market gathered momentum in June 2023, when it became evident that the company had to be listed by September 30, 2025. The company’s stock price was quoting at Rs 460 per share till June 2023 and peaked at Rs 1,075 per share in June 2025 in anticipation of a public issue.

In October 2021, the Reserve Bank of India introduced a scale-based regulation framework for NBFCs. Lenders classified as upper-layer NBFCs had to be listed entities and were given three years starting October 1, 2022, to comply. Consequently, Bajaj Finance listed its housing arm Bajaj Housing in September 2024, while HDFC Bank’s HDB Financial listed on July 2.