Several Tata group stocks rallied in the hope recently that Tata Sons will finally be a listed entity. However, the hopes of Tata Sons IPO coming to fruition have been dashed following attempts of a debt recast came to fore. The debt restructuring is likely to help Tata Sons lose tag of Core Investment Company (CIC) and move it out of the ambit of the Reserve Bank of India (RBI).
The action comes after the central bank declined to offer any concession to the holding company of Tata Group from mandatory listing requirements. The central bank classified Tata Sons as an upper-layer Non-Banking Financial Company (NBFC) in September 2022. The bank also mandated that all such NBFCs are required to list themselves on the stock exchanges within three years.
Tata Sons IPO: Debt Recast to Avoid Listing
This leaves Tata Sons – the controlling entity with interests in several group companies – with limited choices. It is widely known that the group is not keen to list its crown jewel. One of the options to avoid Tata Sons IPO is to transfer its holding in financial services company Tata Capital to other entities. Another viable choice may be to just transfer its debt to other entities. According to the company’s latest annual report, Tata Sons has borrowings of INR 20,000 crore (INR 200 billion).
RBI rules allow exemption from listing if a CIC has less than INR 100 crore in assets and doesn’t raise public funds. Tata Sons can side-step the listing requirement and Tata Sons IPO by transferring its debt.
The Impact on Listed Group Entities
As mentioned above, some listed group entities – directly holding stake in Tata Sons – saw their stock prices jump significantly in recent days on hopes of value unlocking. These include Tata Motors, Tata Steel, Tata Chemicals, and Tata Power with stock price jumps ranging from 7% to 33% in the last 30 days. Out of these, Tata Chemicals is facing strong headwinds in its core business but its stock price has rallied over 33% over the month.
These stocks may face selling pressure in light of the latest developments and the group’s efforts to avoid a public market listing.
It is worth highlighting that these developments are limited to Tata Sons and are unlikely to impact listing of other group entities. As many as four Tata Group companies are planning public market listings in India. These include Tata Capital, Tata Play, Tata Autocomp Systems, and Tata Advanced Systems.
Read Also: Tata Capital IPO – Another Tata Group IPO in Sight Amid Regulations
While the market participants were rooting for Tata Sons IPO, the group’s hesitation is understandable. The holding company is controlled through various trusts and a public market listing would expose the company and the trusts to the regulatory scrutiny. A listing may also limit the group’s control on its listed entities.
