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Photo: Bloomberg
Photo: Bloomberg

Tatas may rope in a third party

  • Tata Sons has the first right of refusal for the 18.4% stake owned by two SP group investment companies
  • A recent bid by the debt-laden SP group to pledge its Tata Sons shares to raise money prompted the Tatas to move the Supreme Court

Tata Sons Ltd has two options before it as it heads for a split with the Shapoorji Pallonji (SP) group: Raise about 1.5 trillion to buy out SP group’s shares, or find an external buyer for these shares.

Tata Sons has the first right of refusal for 18.4% stake owned by two SP group investment companies. A recent filing by Tata Sons in the Supreme Court estimated the market value of 9.19% shares pledged by Cyrus Investment at 75,000 crore.

According to a person aware of the matter, Tata Sons previously discussed buying out the SP group stake with a large state-owned financier, a foreign state-owned investment company and one of the largest pension funds in the world.

“These firms had shown interest in 2017. Since then, the valuation of Tata Sons shares would have only appreciated. The Tata group may approach these firms again," the person said on condition of anonymity.

Article 75 of Tata Sons articles of association empowers the company to ask shareholders to sell their holdings by passing a special resolution. “The company may at any time by special resolution resolve that any holder of ordinary shares do transfer his ordinary shares. Such member would thereupon be deemed to have served the company with a sale notice in respect of his ordinary shares."

A spokesperson for Tata Sons declined to comment.

“There is a lot of money involved. The Tata Sons management is examining it, and the matter is also sub judice. Finding some investor of Tata Sons’ choice is an option," the person cited above said.

A recent bid by the debt-laden SP group to pledge its Tata Sons shares to raise money prompted the Tatas to move the Supreme Court.

The Tata group would like to avoid borrowing to buy out the SP group’s stake, as it has been focusing on reducing its debt across group firms. Group firms that have a significantly high level of debt include Tata Steel Ltd, Tata Motors Ltd and Tata Power Ltd.

Since the outbreak of covid-19, Tata Sons has been strategizing to infuse liquidity into hard-hit group firms. It also wants to cut its stake in some group firms.

“This is a significant development which will bring the long-pending and acrimonious litigation to an end. However, arranging resources for the buyout could be challenging. The other twist in the tale could be the valuation of shares, which will need to be ironed out as a matter of urgency. The SP group can’t afford a delay as this will impact their desire to monetize the shares," said Ramesh K. Vaidyanathan, founder and managing partner, Advaya Legal.

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