MC EXCLUSIVE Tata International faces a Rs 800 crore bond redemption that risks raising financing cost and strain cash flow

The non-convertible debentures were issued in December 2022 to refinance older bonds

Tata International (TIL), the loss-making trading and distribution arm of the Tata Group, is staring at a crucial test in December this year when bonds worth about Rs 800 crore come up for redemption, which, if the company fails to redeem, could see interest rate on the instruments rise from 9.1 percent to 12.1 percent - a steep three-percentage-point markup - significantly raising its financing costs and strain cash flows, company filings reviewed by Moneycontrol have shown.

The non-convertible debentures (NCDs) were issued in December 2022 to refinance older bonds, and carry a three-year 'First Optional Call Date', giving TIL the discretion to redeem at the end of the period. Though perpetual in nature, the sharp coupon reset makes the redemption effectively mandatory.

The impending call comes at a time when TIL’s financial metrics have been weak, with a reported revenue of about Rs 28,000 crore in FY24 at an operating margin of just one percent while its net debt has risen above Rs 4,100 crore, as of September 2024. Despite a rise in turnover to nearly Rs 32,000 crore in FY25, TIL posted a net loss of roughly Rs 477 crore due to high leverage, forex losses and weak operating performance.

With total debt - including perpetual instruments - estimated at over Rs 5,000 crore, any delay or rollover of these bonds could increase TIL’s interest outgo by nearly Rs 24 crore annually, further squeezing liquidity.

Emails sent to Tata International and Tata Sons remained unanswered at the time of publication, and the story will be updated if they respond.

Funding plan and governance discord

Given its stretched balance sheet, TIL may have to refinance the bonds or rely on its promoter - Tata Sons - which has already approved a Rs 1,000-crore capital infusion. However, this funding decision has deepened the ongoing rift among trustees of Tata Trusts, which collectively own 66 percent of Tata Sons.

As Moneycontrol reported on October 9, at a meeting of the Tata Trusts board on September 11, several trustees - including Mehli Mistry, Pramit Jhaveri, Jehangir HC Jehangir and Darius Khambata - questioned whether the funding complied with Article 121A of Tata Sons’ Articles of Association which requires prior Trusts’ approval for major financial commitments.

The same group of trustees had also clashed with Noel Tata and Venu Srinivasan over the reappointment of Vijay Singh as Tata Sons’ nominee director at the September 11 Trusts meeting. Singh, a former Defence Secretary, had resigned last month.

The issue was also discussed during a Tata Sons board meeting in August where director Harish Manwani observed that TIL needed a clearer long-term purpose, warning that without one, the company risked remaining 'transactional and opportunistic'. Tata Sons Chairman N Chandrasekaran said that while a capital infusion might ease near-term pressure, TIL faced deeper structural challenges and could require up to Rs 3,000 crore in total support - thrice the current plan.

He recommended a review by September 2026 with an interim assessment in a year.

Together, these developments highlight a growing split within Tata Trusts between one faction pushing for stricter governance oversight and another advocating quicker, centralised decision-making in the Tata Group’s affairs.