Singapore: What’s a nice round figure to take to a job interview? If the position in question is chairman of Tata group, there might be three of them: $40 billion; 2020; and 250 basis points.
That’s the value of the Indian conglomerate’s outstanding debt, and there are several reasons it needs to be discussed before pay and perks.
For one thing, investors will hound the next chief for answers. About 90% of the Tata loans and bonds are on the books of publicly listed companies whose shareholders are nervous about the recent sacking of the group’s chairman after less than four years at the helm.
Market value of Tata group
Cyrus Mistry has lashed out against his dismissal by warning of a possible $18 billion in asset writedowns. Discount that estimate for wounded pride, but there’s no denying that some of the businesses Mistry described as “legacy hot spots” do have lousy credit metrics. Tata Teleservices Maharashtra Ltd.’s debt exceeds 11 years of the wireless carrier’s earnings before interest, tax, depreciation and amortization. Ditto for Tata Steel Ltd. The debt-to-Ebitda multiple at Indian Hotels Co., owner of the Taj group, is approaching eight times.
Then there’s the niggling issue of bunched-up repayments, the second topic toward which the aspiring chairman must steer the interview.
Given that 30% of the Tata group debt originally contracted in US dollars, and more than 60% of the British-pound borrowings, will need to be repaid or refinanced in 2020, the next chairman must know from his recruiters what it is that they wish to tell international creditors about strategy before then.
Much of the group’s debt burden has its genesis in the optimistic expansion in the second of the two decades under Ratan Tata. To the extent his return (albeit as an interim arrangement) has ignited concerns that Mistry’s attempts at deleveraging will get shelved, the new full-time boss will be expected to calm nerves.
Otherwise, the loans market, which is currently treating even highly leveraged Tata companies with benign neglect, could turn anxious, especially if the ongoing war of words with Mistry casts a lingering shadow on creditor sentiment.
A good place to start that uncomfortable conversation may be 250 basis points, which is the spread the group paid over Libor to raise five-year money this year for Tata Steel. For a company that’s rated BB- by S&P Global Ratings, the global average for similar dollar loans this year has been 262 basis points, according to data compiled by Bloomberg. Clearly, the 148-year-old Tata brand commands a decent premium in credit markets despite the dead weight of its European steel operations.
That privilege could vanish if the bickering doesn’t end. The 78-year-old Ratan Tata may have regained control of the conglomerate that bears his family’s name, but Mistry’s 18.4% stake in the holding company — and board seats across the group — give the 48-year-old a bully pulpit from which he can demand fire sales, especially of assets his older foe is fond of.
A confrontation could get messy for the next chairman. Taking three crucial numbers into the interview won’t guarantee success in what might prove to be India Inc.’s most demanding open job, but making an appearance without them could be a surefire way to end up as collateral damage. Bloomberg