Noel Tata, chairman of Tata Trusts, which holds about 66 per cent in Tata Sons, tabled a proposal from the Shapoorji Pallonji Group (SP Group) at a Tata Sons board meeting on Thursday, under which the SP Group would sell Tata Sons shares held through Sterling Investment Corporation (SICPL) and Cyrus Investments (CIPL) to raise at least Rs 25,000 crore.
The minimum value of the shares would be determined in accordance with Rule 11UA of the Income Tax Rules, 1962.
The proposal is aimed at providing a route to address the SP Group’s liquidity needs without requiring a public listing of Tata Sons, the holding company of the Tata group.
“This is in continuation and reaffirmation of the Tata Trusts’ desire to offer a fair and equitable solution to the SP Group in respect of their holdings in Tata Sons”, the statement said.
The SP Group promoter family owns an 18.37 per cent stake in Tata Sons through Cyrus Investments and Sterling Investment Corporation. The group has been looking to monetise its stake in Tata Sons to repay debt raised through high-yield bonds by various group subsidiaries.
In a statement on Thursday, Tata Trusts said the proposal was in the context of meetings and discussions held earlier between (Noel) Tata, N Chandrasekaran, chairman of Tata Sons, and Shapoor Mistry, managing director of Shapoorji Pallonji & Company.
The statement also indicated that the SP Group would be comfortable with a structure under which the proposed share buyout is carried out in two tranches over 18 months. Under the proposal, Tata Sons would initiate a selective capital reduction process through the National Company Law Tribunal (NCLT), with the Tata Sons shares valued based on their fair value under income-tax rules.
Noel Tata also suggested that Tata Sons could explore multiple avenues to fund the proposed buyout, including internal cash flows, the sale of listed shares, bringing investors into some of its newer businesses and raising funds through offers for sale of stakes in some businesses. He asked the board to initiate the NCLT process and authorised the operating teams of Tata Sons and Tata Trusts to continue discussions with the SP Group and its bankers and report back to the board.
The move comes after the Reserve Bank of India (RBI) rejected Tata Sons’ application to deregister as a non-banking financial company (NBFC) last week, requiring the holding company to list on the stock exchanges as an upper-layer NBFC under RBI rules.