Tata and SP Group Rekindle Exit Talks Amid Financial Struggles, ETLegalWorld
Mumbai: Tata Sounds is understood to have initiated early talks with its minority shareholder, the Shapoorji Pallonji (SP) Group, to discuss the way forward in terms of potential exit options and monetisation scenarios for the latter’s stake in the company that’s currently pledged with lenders. The SP Group owns 18.37% of unlisted Tata Sons, the holding company of the Tata Group.
Sources said Tata Sons chairman N Chandrasekaran recently met SP Group chairman Shapoor Mistry at an undisclosed location, the first formal engagement between the two sides since relations soured following the ouster of the latter’s brother Cyrus Mistry as Tata Sons chairman in 2016.
The interaction between the two sides, however, is preliminary in nature. “It was done to get a sense of expectation from the SP side,” said one of the persons cited.
“It will be a long journey towards any final settlement talks between the two sides,” said the person.
Shapoor, elder of the two Mistry brothers, has always maintained a low profile. Cyrus Mistry died in a car accident in 2022. The two sides agreeing to talk marks a significant shift in their relationship since 2016.
Tata Sons and Shapoor Mistry did not respond to queries.
Last week, the Tata Trusts passed a resolution affirming that Tata Sons should remain an unlisted private company and initiate discussions with the SP Group to provide it an exit, marking a key strategic shift.
“It was agreed at the meeting to request the chairman of Tata Sons to explore all possible avenues for ensuring that there was no change in the status of Tata Sons as it currently stood. This included a dialogue with the minority shareholders, i.e., the SP Group for providing an exit to them from Tata Sons,” the resolution said.
Chandrasekaran is leading parleys and will share updates with the Trusts, the sources said.
Tata Sons is expected to consider the rights and concerns of the SP Group as a minority shareholder, people familiar with the development said. Tata Trusts has stated earlier that the pledged Tata Sons shares are non-transferable.
“It is in tune with the principles of corporate governance that a healthy relationship is maintained with minority shareholders of a company. Moreover, if channels of communications are open, it would ultimately help in smooth decision making in the company,” said Ashish K Singh, managing partner of law firm Capstone Legal.
The SP Group formally urged the Reserve Bank of India (RBI) in April to back a public listing of Tata Sons, arguing that such a move would benefit all stakeholders. Struggling to service substantial debt, the SP Group had also expressed its concerns to Tata Sons over not being informed about the company’s decision to surrender its registration as an Upper Layer Core Investment Company (UL CIC) to the RBI.
In January, the RBI stated in its annual report that it was considering an application by Tata Sons to deregister itself from being classified as a core investment company (CIC) under upper-layer non-banking finance company (NBFC-UL) norms. Under RBI rules, as an NBFC-UL, Tata Sons would have to get listed by September. Tata Sons had become a zero-debt company to make itself eligible for exclusion from the list.
The SP Group has used its entire holding in Tata Sons as collateral to raise funding from private credit funds. The value of its stake in Tata Sons, based just on its holdings in listed Tata Group companies, is more than Rs 3 lakh crore ($35 billion).
The SP Group, which is one of the country’s oldest conglomerates, has been facing financial stress in recent years, driven by a combination of high debt and a liquidity crunch. The group, which has interests in construction, real estate, infrastructure and engineering, saw its financial strain intensify during the Covid-19 pandemic, which disrupted business operations and cash flows across sectors.
To reduce debt, the group has been selling key assets. These include its majority stake in Eureka Forbes, the divestment of Sterling & Wilson Solar to Reliance Industries, the public listing of Afcons Infra, the sale of Gopalpur Port and the monetisation of real estate assets such as commercial projects and land banks.