Tata Sons, the principal investment holding company of the $150 billion Tata group, is reportedly considering ways to avoid an initial public offering (IPO).
A core investment company (CIC), Tata Sons is categorised as a non-banking finance company upper layer (NBFC-UL) by the Reserve Bank of India (RBI).
It was in 2021 that the central bank came out with scale-based regulation for non-banks as part of which they were divided into four layers.
Subsequently, on September 30 2022, the central bank announced the list of 16 NBFCs in the list of upper layer which included Tata Sons and its subsidiary Tata Capital as NBFC-UL. Therefore, Tata Sons and Tata Capital will both have to come out with an IPO by September 2025.
One of the conditions attached to NBFC-UL is that they will have to be mandatorily listed within three years of identification as NBFC-UL.
The RBI had also said that disclosure requirements will have to be put in place on the same lines as applicable to a listed company even before the actual listing, as per board approved policy of the NBFC.
While a potential listing from the Tata group promoter has been the subject of occasional speculations in the market, this picked up recently when a couple of brokerages flagged the possibility of the IPO ahead of the 2025 deadline.
While there has been no official comment from Tata Sons, it is learnt that the holding company would like to remain privately held and it has been examining options for some time now.
At one point in time, it was reportedly looking at the possibility of merging with a subsidiary to get around the listing rule.
While the identity of the subsidiary could not be established, Tata group officials had also met the RBI in the past seeking an exemption. The banking regulator is, however, not inclined to give in as it will lead to similar requests from other players.
Tata Sons is now apparently weighing several options to sidestep the IPO rule which include transferring its holding in Tata Capital to another group entity as well as becoming a debt-free entity. This can be achieved by either repaying the debt or transferring it to another group firm so that it can shake off the tag as a CIC and an NBFC-UL.
Market circles said reports of the holding company trying to skirt an IPO may lead to profit booking in some of the group stocks when markets reopen for trading next week.
During this week, the shares of Tata Chemicals had zoomed 35.55 per cent, Tata Investment Corporation almost 22 per cent, Rallis 13 per cent and Tata Power by 12 per cent on hopes of value unlocking because of the potential listing of Tata Sons.
This came after a note from Spark Private Wealth Management which said that Tata Chemicals holds a stake of 3 per cent in Tata Sons, apart from Tata Motors and Tata Power who have 3 per cent and 2 per cent, respectively. According to the brokerage, Indian Hotels also hold 1 per cent of Tata Sons. This was as of March 31, 2023.
“We believe that this event could likely lead to the simplification of the complicated group holding structure of the Tata Group and enable some of the listed holding companies to liquidate its holding within the giant parent conglomerate,’’ the brokerage said.