Tata-Mistry tussle to have limited impact on group firms: S&P

The tussle between Cyrus Mistry and Tata Sons has created uncertainty at the board level of group firms which could slow down decision-making


Ratan Tata (left) and Cyrus Mistry. S&P said the ratings of Tata group companies, including Tata Steel, Tata Power and Tata Motors, will remain unaffected. Photo: PTI
Ratan Tata (left) and Cyrus Mistry. S&P said the ratings of Tata group companies, including Tata Steel, Tata Power and Tata Motors, will remain unaffected. Photo: PTI

Mumbai: Rating company Standard & Poor’s (S&P) warned on Monday that the continuing tussle between shareholders of Tata Sons Ltd had created uncertainty at the board level for group companies and could slow decision-making at some of them.

Yet, the fact that most of these companies are professionally managed and continue to deliver on their business and financial plans will hold them in good stead, the credit assessor said.

S&P said the ratings of Tata group firms, including Tata Steel Ltd, Tata Power Ltd and Tata Motors Ltd, will remain unaffected; S&P has already factored in the weakness of Tata Steel’s European operations, problems faced by Tata Power’s Mundra plant and the India operations of Tata Motors.

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Since 24 October, when Cyrus Mistry was ousted as chairman of Tata Sons, the market capitalization of Tata group firms has fallen by over Rs1 trillion.

To be sure, the overall market, too, has fallen during this period, driven by a combination of factors including the demonetization of high-value currency and the victory of Donald Trump in the US presidential election that has prompted the exit of foreign funds from emerging market assets.

Since his removal, Mistry, whose family owns 18% in Tata Sons, has been locked in a bitter battle with the management of the holding company.

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While Tata Sons has managed to remove Mistry as chairman of some operating firms, he continues to be a director on them. Tata Consultancy Services Ltd (TCS), the flagship firm of the group, was the first to call an extraordinary general meeting (EGM) on 13 December to oust Mistry as a director.

On Monday, in a filing to the exchanges, Tata Chemicals said it was calling an EGM on 23 December.

S&P said it will review its assessment if it sees greater control of Tata Sons over the board, strategy, and cash flows of individual companies.

S&P pointed out that the sudden removal of Mistry and some independent directors and allegations and counter-allegations raise corporate governance issues for various group companies. These developments, it said, could affect investor confidence in the group, which is generally respected for its corporate practices.

S&P said the timely appointment of a new and well-respected chairman coupled with strong independent directors can provide a clear direction to individual companies. Tata Sons has put in place a search committee to find Mistry’s replacement.

Some Tata group companies such as Tata Steel and Tata Power have high leverage and are pursuing strategic measures for reducing debt which may probably get delayed.

Mahantesh Sabarad, head-retail research at brokerage SBI Cap Securities, said the ongoing “power struggle” was not a concern and unlikely to have an impact on group firms as board powers are well-defined. “Tata Sons is just exercising the rights of a principal shareholder,” he said.

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