MC EXCLUSIVE Tata Trusts, Tata Sons in talks to provide part-exit to SP Group

The Tatas and the Shapoorji Pallonji (SP) Group may be on course to reach a truce. Highly placed people aware of recent developments say Tata Trusts and Tata Sons is open to offering SP Group a 4-6 percent stake dilution in Tata Sons. The move, if it transpires, will provide much-needed liquidity to the SP Group, which is facing a net debt burden of around Rs 30,000 crore.

This comes at a time when the Tata Trusts, which owns 66 percent of Tata Sons, has been roiled by differences between two sections of the trustees, leading to possible government intervention,  as per news reports.  A few government officials are likely to meet members of the Tata group in the coming days in Delhi.

The meeting will likely take stock of the differences within the Tata Trusts as well as a possible listing of Tata Sons. It is gathered that Noel Tata, chairman of Tata Trusts, N Chandrasekaran, chairman of Tata Sons, Venu Srinivasan, chairman emeritus, TVS Motor Company and board member of Tata Sons, and Darius Khambata, a lawyer and trustee on multiple Tata trusts, may meet the government officials in this regard.

The possible meeting between the government officials and senior Tata Group officials in the wake of differences between the trustees was first reported by the Economic Times on October 6.

While no final decision has been taken, a possible mechanism to provide liquidity will be for Tata Sons to buy back its shares in case there is no listing.  Completing the process could take up to a year if the buyback route is adopted.

The government’s concern

According to some of the sources cited, the government may get involved, considering the quantum and nature of debt availed by the SP Group. “A reasonable part of financing has been channelised through private credit funds, and the government is keen to ensure that there is no default on these loans, ” said a person aware of the matter. “The government doesn’t want an instance of a loan failure and that too from a reputed business house like the SP Group,” the person added.

Tata Trusts, Tata Sons, SP Group and the Ministry of Finance did not respond to emails before the story was published. The story will be updated if they do respond.

Not seeking a full exit

To be sure, SP group’s debt in FY25 was pegged at Rs 55,000-60,000 crore, of which Rs 29,000 crore is said to have been refinanced. However, with the cost of refinancing being significantly higher than the bank debt, SP Group is said to be seeking some relief with regard to cash flows to ensure smooth operations at an entity level.

According to Tata Sons' annual report, the company's net worth was pegged at approximately Rs 1.5 lakh crore as of FY25. Further, it is also understood that the SP Group as such isn’t keen to liquidate or sell its entire 18.4 percent stake in Tata Sons. “A 12 – 14 percent holding in Tata Sons could ensure a steady flow of dividends, which the members of the SP Group do not want to forgo,” a senior official aware of the matter said. In FY25, Tata Sons paid a dividend of Rs 1,414.51 crore to its shareholders.

There are different estimates of the valuation of the unlisted holding company of the Tata Group. A recent internal valuation exercise is said to have pegged the valuation of Tata Sons at $70 bn (Rs 6,21,152 crore), of which a 4-6 per cent stake is roughly about Rs 25,000 crore.

“Representatives of Tata Sons and Tata Trusts are likely to communicate to the government officials that internally there is a consensus and willingness to offer liquidity to the SP Group. This may put an end to the matter of listing Tata Sons,” said a source with knowledge of the developments. On September 3, Moneycontrol reported that the RBI has asked Tata Trusts, Tata Sons and the SP Group to communicate the final decision on the matter of listing to the regulator.

Likely issues

In the meeting with government officials, likely in the coming days, some of the transaction-related difficulties in providing liquidity to the SP Group may also be discussed. There are two primary issues, according to sources who briefed Moneycontrol:

1.    Any buyback of shares is likely to attract significant capital gains tax as per the current Income Tax Act.

2.     Tata Sons, which has already approached the Reserve Bank of India to surrender its NBFC licenses, would have to fund the buyback or repurchase of shares without taking on fresh debt.

While some sort of sweeteners may be asked for by the representatives of Tata Trusts and Tata Sons, it is gathered that truce talks may not be put on the back burner due to regulatory and taxation implications. “As things stand, it is unlikely that any exemption will be extended to both parties involved,” said a source who did not want to be identified.

Even as no firm commitments have been made so far, the parties involved may take about a year to provide liquidity to SP Group.

Tata Trusts is the single largest shareholder of Tata Sons, holding a 66 percent stake in the privately held entity. SP Group, though two entities - Cyrus Investments (9.2 percent) and Sterling Investment Corporation (9.2 percent) collectively holds over 18 percent in Tata Sons.

Aid in avoiding IPO 

A middle-ground reached between the two factions may also put an end to the five-year-long demand by the SP Group to list Tata Sons shares, as it currently cannot sell its stake in Tata Sons.

“With the sword of mandatory listing hanging over Tata Sons and infighting cropping up within the trustees of Tata Trusts, it would be in the interest of everyone that an amicable solution is reached on the matter of listing,” said a senior official who didn’t want to be named.

In October 2022, the Reserve Bank of India directed that NBFCs classified as upper-layer entities should be listed in three years from the date of such classification. By virtue of loans over Rs 15,000 crore and cross-debt to group companies, Tata Sons was classified as upper upper-layer NBFC despite being only a core investment company (CIC). In the last one year, the debt has been retired as per rating agency reports, including the intercompany exposures.

Tata Sons, which surrendered its NBFC license in September last year, has given an undertaking to the RBI that it would continue to operate as a debt-free entity. While the September 30, 2025, deadline for listing has lapsed, the final decision on derecognising Tata Sons as an NBFC-CIC is awaited.