Noel Tata’s appointment increases the likelihood of renewing dialogue with the Shapoorji Pallonji Group. | Photo: PTI
The appointment of Noel Tata as the new chairman of Tata Trusts could reduce long-standing tensions between Tata Sons and Shapoorji Pallonji Group. The development could also open the door for the latter to explore partial monetization of its 18.4 per cent stake in Tata Sons, provided mutually acceptable terms can be reached.
However, according to a report published in The economic timesSuch a move may not happen immediately as Noel Tata has just assumed the presidency following the death of industrialist Ratan Tata.
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‘Reduction of hostility to the benefit of both sides’
“The Tatas and the Mistrys (of the Shapoorji Pallonji group) have had a shareholding relationship since 1965, and the dispute arose only in the last nine years,” a source was quoted as saying in the report. Noel Tata’s appointment raises the likelihood of renewed dialogue between the two groups, particularly as his wife, Aloo, is the sister of the late Cyrus Mistry, who was ousted as chairman of Tata Sons in 2016, leading to deteriorating relations. .
The source further added: “Although everything may not go perfectly well, the reduction in hostility could benefit both parties as shareholders, facilitating better communication.”
Debt reduction and asset monetization
The Shapoorji Pallonji Group has been working to reduce its consolidated debt, bringing it down from Rs 32,500 crore in March 2021 to Rs 20,564 crore in March 2023, according to Infomerics Ratings. However, the group still faces significant debt due to increased borrowing at the promoter level to refinance loans taken by its subsidiaries.
In the last two-three years, the group has successfully monetized assets such as Eureka Forbes, Sterling & Wilson Renewable Energy and SP Jammu Udhampur Highway. Further asset divestments are planned to reduce the group’s overall debt load. A Rs 8.5 billion public offer is also on the horizon for his construction and engineering company, Afcons, with plans to sell shares worth nearly Rs 7 billion.
Long-running dispute and possible stake sale
Relations between Tata Sons and Shapoorji Pallonji Group have been strained since 2016, following the ouster of Cyrus Mistry. In 2020, SP Group attempted to exit Tata Sons as part of its minority shareholder oppression case, proposing to exchange its 18.4 per cent stake for shares in Tata Sons’ listed subsidiaries.
Shapoorji Pallonji Group valued its stake in Tata Sons at Rs 1.75 trillion in an affidavit filed with the Supreme Court in December 2020, although Tata valued it at Rs 70,000-80,000 crore. Now, the value of Tata Sons’ stake in its listed entities has since increased by 90 per cent, rising from Rs 8.68 trillion in December 2020 to Rs 16.44 trillion. Accordingly, SP Group’s stake in Tata Sons is currently valued at approximately Rs 3.02 trillion, up from Rs 1.6 trillion in 2020 calculated on a proportional basis.
Despite this, the value of the participation is discounted due to lack of control. At Tata Sons’ recent annual general meeting, SP Group suggested listing the holding company to unlock value and increase liquidity for all stakeholders. Any possible sale of SP Group’s stake could involve several options such as a buyback, private equity stake or transfer of shares in listed companies such as Tata Consultancy Services (TCS).
In March this year, investment bank Spark Capital valued Tata Sons at up to Rs 8 trillion, with SP Group’s stake estimated at Rs 1.46 trillion. To manage its debt, Shapoorji Pallonji Group has leveraged its entire stake in Tata Sons to raise $2 billion from private credit funds. The stake is held through Cyrus Investments and Sterling Investment.
First published: October 15, 2024 | 10:55 am IS
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