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Tata vs Mistry: Shapoorji Pallonji Group looks to part ways with Tatas

Separation from Tata Group is necessary to protect interest of stakeholders, says Shapoorji Pallonji Group.

September 23, 2020 / 06:45 PM IST

The Shapoorji Pallonji Group, the largest minority shareholder in Tata Sons, the holding company of  Tata Group, on September 22 said that a separation from India’s largest conglomerate would be required to protect the interest of all stakeholders. The SP group holds an 18.37 percent stake in Tata Sons and the former’s exit plans could signal a long-awaited settlement between both the parties which have been locked in a bitter feud and several rounds of litigation since Cyrus Mistry was ousted as the Tata Sons chairman in October 2016.

Interestingly, the move comes after the Tata Group indicated to the Supreme Court that it was open to buy out the stake held by the Mistry family, the promoters of the Shapoorji Pallonji Group.

“It’s unfortunate, but existing together is no longer possible and there has to workable, court blessed separation. The modus of separation has to be evaluated going ahead and a fair and equitable distribution of both tangible and intangible assets is required,” an individual familiar with ongoing developments told Moneycontrol.

“The value of the Shapoorji Pallonji group shareholding in Tata Sons is pegged at around Rs 1,78,459 crores based on recent calculations considering the value of listed, unlisted entities and the brand ,” according to a second individual who is close to the SP Group. Moneycontrol could not independently verify this figure.

Both the individuals spoke to Moneycontrol on the condition of anonymity. When contacted for an official response, Tata Sons declined to comment.

The Supreme Court on Tuesday ordered a status quo on the transfer or pledging of Tata Sons shares by the SP Group companies. The top court said it would take up the matter for hearing of final arguments on October 28, directing both the parties to maintain status quo till then. The Tata Group had moved the Supreme Court to restrict the SP Mistry Group from raising capital against their shareholding in Tata Sons and address debt obligations.

The SP Group had Rs 9,280 crore ($1.3 billion) in external debt at its main holding vehicle, Shapoorji Pallonji and Company Pvt, as of end-February, according to Care Ratings Ltd. The group-wide debt was estimated by the local credit rating firm to be more than Rs 30,000 crore as of March 2019

Following a statement made at the apex court earlier today, the SP Group shared the following detailed official statement :

“Today, the SP Group stated before the Supreme Court that a separation from the Tata Group is necessary due to the potential impact this continuing litigation could have on livelihoods and the economy. They stated that it was crucial that an early resolution is reached to arrive at a fair and equitable solution reflecting the value of the underlying tangible and intangible assets.

As the largest minority shareholder owning an 18.37% stake, the role hitherto played by the SP Group, was always one of guardianship with an aim to protect the best interests of the Tata group. The SP Group had always used its voting rights as a shareholder for the best interest of the Tata Group. It is a matter of record that prior to the year 2000, when the Tata Trusts, being Public Charitable Trusts, couldn’t exercise their voting rights , the same being held by a Public Trustee, the SP Group voted to protect the best interests of the Tata Group.

In 2012, when Mr. Cyrus Mistry accepted the position of Chairman of Tata Sons, it was not only with a sense of pride, but also with a sense of duty as an ‘insider’ on the Board of Tata Sons. The Tata Group was going through significant change. A generation of Tata leaders were retiring with implications on the future governance of the Group. Several of these leaders who were retiring from the Board of Tata Sons also served as Trustees of the majority shareholders - Tata Trusts. It is in this context that Mr. Mistry set about trying to establish a governance structure that would institutionalize accountability, and create the right checks and balances, without contravening the new SEBI Insider Trading law that regulated the flow of information across all stakeholders. Unfortunately, he was removed in October 2016, when he attempted to implement these governance reforms.  

It is extremely unfortunate that the current leadership of Tata Sons has not only continued to take value destructive business decisions in a misguided effort to prove a point in these proceedings. It is a matter of public record that several issues identified years earlier, continue to plague the group. Be it the operations of Tata Steel UK, where over the last three years alone the operational losses have increased by an additional 11,000 crores, or the Group’s aviation businesses. These actions, or lack thereof, have meant that the total debt in the major Tata group companies has increased by approximately Rs 100,000 crores in the last three years. Excluding TCS, the last quarters losses of all the listed group companies of approximately 14,000 crores causes great concern. Unfortunately, the impact of these actions continue to hurt minority shareholders, be it the SP Group at Tata Sons or the millions of shareholders of the listed companies in the Tata Group.

Tata Sons has amplified its institutional efforts to suppress and inflict irreparable harm on the SP Group, in the midst of a global crisis triggered by the COVID Pandemic. The 150 year old SP Group – is the second largest construction group in the country, executing projects of national significance in India and abroad. The Mistry family were in the midst of raising funds against the security of their personal assets to meet the crisis arising from the global pandemic. This move was undertaken to protect the livelihoods of its 60,000 employees and over 100,000 migrant workers. The action by Tata Sons to block this crucial fund raise, without any heed for the collateral consequences is the latest demonstration of their vindictive mind-set.  

The current situation has forced the Mistry family to sit back and reflect on the past, present and possible future for all stakeholders. The past oppressive actions, and the latest vindictive move by Tata Sons that impact the livelihoods of the wider SP Group community leads to the inexplicable conclusion that the mutual co-existence of both groups at Tata Sons would be infeasible. The SP-Tata relationship spanning over 70 years, was forged on mutual trust, good faith, and friendship. Today, it is with a heavy heart that the Mistry family believes that a separation of interests would best serve all stakeholder groups.”

Ashwin Mohan
first published: Sep 22, 2020 07:48 pm