Tata Sons IPO news | Why is it getting difficult for Tata Group's holding company to stay private?

Tata Sons IPO News: The Reserve Bank of India (RBI) is said to have rejected Tata Sons Private Limited's plea for a waiver from a regulatory rule requiring it to go public. The Tata Group holding company has resisted a stock exchange listing for years, as this would subject it to tighter regulatory oversight and force it to reveal more of the group’s internal dealings. But the pressure has been mounting in recent months.

The Central Bank of India tweaked the definition of shadow lenders in May, reviving the debate on whether Tata Sons could be forced to list. In June, the regulator reaffirmed a framework for identifying systemically important shadow lenders, keeping Tata Sons on the hook.

The latest RBI missive makes it even harder for the Tata family to hold out against a listing and the closer scrutiny of its affairs that such a listing would entail. Minority shareholders in the company’s various businesses will be watching as an IPO could affect Tata’s ability to shift capital between its cash-rich established businesses and newer, less profitable ventures.

Tata Sons News | Why is it important to go public

Why is RBI asking about the Tata Sons IPO launch? Anuj Gupta, a SEBI-registered market expert, said, “Around two-thirds of the Tata Sons equity capital is owned by Tata Trust, while another 13% of the company's equity capital is owned by the Tata Group companies, which deals in the lending business.”

The SEBI-registered market expert said that the RBI classifies Tata Sons as a shadow bank, while the Tata Group holding company tried to avoid the Tata Sons IPO by pleading with the Central Bank of India to surrender its Core Investment Company registration. However, this plea became null and void when the RBI made it clear by rejecting that application.

Why is Tata Sons under pressure to go public?

After the outbreak of the IL&FS debt default in 2018, the Central Bank of India laid down new rules to try to ensure that such crises don’t endanger the country’s wider financial system.

Under the new RBI rule post-IL&FS debt default, Tata Sons got classified as 'Upper Layer NBFC. This means Tata Sons' balance sheet exceeds ₹1.50 lakh crore. The new RBI rule says that such companies have to list their company within three years on the Indian bourses,” said Avinash Gorakshkar, Founder of Avinash Mentor Research.

Gorakshkar said the RBI believes stock listing is a way to force them to be more transparent about their activities and financial performance.

Since then, Tata Sons’ owners have taken various steps to convince the RBI that it should not be categorised as a shadow lender, thereby avoiding a public listing. In 2024, it applied to surrender its NBFC license and clear its outstanding debts.

However, the latest rule changes introduced earlier this year by the RBI, which are due to take effect on July 1, gave Tata Sons less wiggle room to dodge a listing. The revised framework applies not just to companies that lend to or borrow from listed businesses in the same group, but to any holding company that invests in group companies that do so themselves.

While Tata Sons has pared its own debt, its affiliated companies, including its wholly owned subsidiary Tata Capital, are still raising money from individuals and institutions.

The RBI circular stipulated that an NBFC can’t de-register if it deals directly with customers in its day-to-day business. This is not the case with Tata Sons, but it is with Tata Capital.

(With inputs from Bloomberg)

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