Tata holding firm builds a war chest

Tata holding firm builds a war chest

Mumbai: Tata Sons Ltd, the primary holding firm of the Tata group, last month expanded its authorized capital as well as borrowing limit to fund new businesses and rights issues of Tata Motors Ltd and Tata Investment Corp. Ltd even as group companies expand aggressively across Europe, the Americas, Africa and India through acquisitions and greenfield projects.

Tata Sons raised its authorized capital by almost 30% to Rs4,335 crore from Rs3,350 crore. The closely held firm has also increased its borrowing limit by one-third to Rs20,000 crore, inclusive of commercial paper, or short-term debt.

The enhanced borrowing limit and authorized capital were approved at Tata Sons’ annual general meeting, or AGM, held on 6 August. Since it is an unlisted entity, Tata Sons does not need to inform stock exchanges about this development.

Tata Sons officials could not be reached for comment over the weekend.

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According to resolutions passed at the AGM and reviewed by Mint, Tata Sons will mobilize additional capital through one or more issues of cumulative redeemable preference shares, or CRPS, of Rs1,000 each. The aggregate value of CRPS that will be issued is around Rs1,100 crore. The money will be raised through a private placement with investors, including existing shareholders.

However, the company has no plans to increase its paid-up equity capital immediately.

The authorized share capital is the amount of capital the company can raise by selling shares. It is mentioned in the firm’s statutory filings when it is incorporated and any change will need to be cleared at an AGM.

Paid-up capital is the actual amount invested by shareholders in the company.

The move by Tata Sons to raise its authorized capital and borrowing limit come at a time when two of its associates, Tata Motors and Tata Investment Corp., are in the process of approaching shareholders with rights issues.

Tata Motors, in which Tata Sons holds a 21.9% stake, is looking to raise Rs4,200 crore through a rights issue that will open on 29 September, while Tata Investment Corp., where it owns 54.98%, has been in the market since 27 September to raise Rs450 crore.

Meanwhile, Tata Sons has started the fund-raising process.

Rating agency Crisil Ltd, a Standard and Poors’ firm, has affirmed Tata Sons’ “AAA/Stable" ratings status this month, on three occasions.

On 4 September, the company’s commercial paper programme was reaffirmed at Rs2,000 crore. The amount was raised from Rs2,000 crore to Rs2,300 crore on 12 September, and again on 24 September, to Rs2,625 crore.

Tata Sons has a unique ownership structure, with two Tata charitable trusts—Sir Dorabji Tata Trust and Sir Ratan Tata Trust—owning 65.8% of the firm. The rest of the equity is owned by a disparate group of entities including the Shapoorji Pallonji group through its two investment firms—Sterling Investment Corp. and Cyrus Investments—and several Tata group companies and individuals associated with the group.

Tata Sons has been spearheading much of the group’s growth and is the owner of the Tata name and the Tata trademark.

Tata Sons is on an overdrive to raise resources as it believes that the group companies will require funding for “various expansion programmes and acquisitions", said Crisil.

The group is also eyeing opportunities abroad. In a recent interview in New York to Bloomberg news wire service, Alan Rosling, a member on the board of Tata Sons, said: “If you’re looking at M&A (mergers and acquisitions) it has to be the US and Europe, where opportunities may come up."

Rosling also commented on what rating agencies such as Crisil describe as Tata group’s core strength. Having Tata Sons as a “long-term, stable, private shareholder" means that publicly traded companies within the Tata group may find it easier to access capital for acquisitions, he said.

Tata Sons’ strength lies in the fact that its group companies have a collective market capitalization of more than Rs1.86 trillion as on 25 September. Besides, it had Rs3,674 crore in cash and cash equivalents on its books at the end of 2007-08. Tata Sons reported net income of Rs4,121 crore for the year, a 14% rise over the previous year.

According to Crisil, Tata Sons enjoys “exceptional financial flexibility" in its ability to raise funds by the sale or pledge of shares in Tata Consultancy Services Ltd, or TCS, India’s largest software firm by revenue, in which it holds a 74.81% stake, valued at Rs59,500 crore.

“On an ongoing basis, Tata Sons continues its investments in group companies. It has an investment plan which is to support the investment plan in its group companies for rights issues or investments in new business ventures," said Pawan Agarwal, director of corporate and government ratings at Crisil Ratings, a division of Crisil, in a telephone interview. He added that the fund-raising plan could be “ongoing in phases" and will depend on interest rate scenario. “Typically, no business would like to raise money too much in advance. That’s why, you see a focused period of activity and then a bit of slowdown."

A slowdown or further rise in the cost of capital, however, is unlikely to bother Tata Sons. In a 6 August statement to its shareholders, the firm pointed out that with a net worth of about Rs18,300 crore as of 31 March, it could raise a matching amount without a further approval of the shareholders.

Tata Industries Ltd and Panatone Finvest Ltd are the two other holding companies of the group but Tata Sons is the primary holding company with stakes in most of the group’s firms including Tata Industries and Panatone directly or indirectly.