Tata Sons IPO: Delayed or Derailed?

Excited for Tata Sons IPO?

As per RBI mandate, CICs (Core Investment Companies) who hold assets over 100 Crore Rs or have raised money from public needs to get listed in the Stock Market.

These CICs are considered as upper layer non-financial banking company (NBFC).

Tata Sons is already registered as CIC with RBI. As a result, RBI gave time till September 2025 for Tata Sons to get listed in the stock market.

If listed, Tata Sons might be valued between 7-8 Lakh Crore Rs, which is potentially 80% of market capitalization of Tata Chemicals which holds stake in Tata Sons.

But Tata Sons is desperately trying to avoid an IPO. Firstly, because they don’t need capital and secondly it will lead to dilution and secondly, company can lose its transparency in the way they operate.

How can Tata Sons avoid an IPO then?

1. Plead to RBI to provide exemption, as it has multiple listed group companies and have been in business over decades now. They tried, but as per reports on February 8, RBI has declined the informal requests or concessions.
   

2. Get de-classify as CIC and remove themselves from the upper layer non-financial banking company. Here the story gets complicated. Now to de-classify themselves from CIC, according to RBI, a CIC has assets worth less than 100 cr and does not require public funds, it is not required to go public. Currently, Tata Sons FY23 shows borrowing of Rs 20,000 Crore. So, they can repay all this debt which can potentially restructure the balance sheet. This also aligns with the group strategy to reduce its debt. But this heavy restructuring can impact Tata’s financial and operational stability as it further needs to deal with complex regulations for holdings. Secondly, similar to Tata Sons, Tata Capital has received the same notice from RBI. Then can we transfer debt? Yes, a potential option is to transfer this debt and holdings to Tata Capital and list that entity. Restructuring can be done in such a way that Tata Sons still benefit of the power of the holdings and help them in channeling the capital across group as per requirements. Otherwise through a listed company, it might be difficult for the company. That’s why N Chandrasekharan had a discussion with Ratan Tata Sir pointing out the difficulties in navigating through this hurdle.
   

• This has potential benefits, as Tata Capital will have a diversified portfolio.

• With continuous dividends from TCS, it will be sufficient for Tata Capital to meet interest obligations.

• This can negatively impact Tata Group Companies, who has risen recently in the wake of listing of Tata Sons. eg Tata Chemicals.

• Necessary approvals and legal & regulatory compliances need to be assessed thoroughly before taking this step.

• There is a huge risk of funding mismatches if existing credit facilities are withdrawn or not rolled over properly.

• The restructuring will have financial implications on both companies and might affect their borrowing capabilities.

• Approvals from Shareholders like Tata Trust and Mistry Family will be required for the restructuring plan.
  

It will be an interesting case study on how Tata strategically plays this out.

What do you think can happen?

Thank you for reading.

Note - CS.1 - Let's Think Like a Consultant.