ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronEye IconIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon PrintTitle ChevronIcon Twitter
Companies

Tata faces $24bn share buyback to settle long dispute with ex-ally

India's leading conglomerate needs new strategic partners, experts say

Ratan Tata, right, handed over Tata Group's chairmanship to Cyrus Mistry in 2012. His removal from the top post in 2016 led to the ongoing dispute between the two families. (Nikkei montage/source photos by Reuters)

MUMBAI -- India's Tata Group is facing the painful prospect of a $24 billion share buyback to end a dispute with its longtime business partner, but market observers said it could also be a fresh opportunity for the conglomerate to form new strategic relationships.

Shapoorji Pallonji Group, the largest minority shareholder in Tata Sons, Tata Group's unlisted holding company, is planning to sell its entire 18.37% stake amid a complex legal battle with Tata's founding family.

Shapoorji Pallonji is the family-run business of ousted former Tata Group Chairman Cyrus Mistry, who was removed from the board in October 2016, triggering a lawsuit that resulted in his reinstatement by a tribunal in December. Tata has since been fighting that court order.

Shapoorji Pallonji made a proposal last week for a "separation" from the Tata Group before the Indian Supreme Court, "due to the potential impact this continuing litigation could have on livelihoods and the economy."

Tata Sons had earlier approached the court to restrain Shapoori Pallonji from pledging Tata Sons shares to raise funds for its own businesses. Tata Sons argued that it has the right of first refusal in cases where its shares are to be pledged or sold to another party.

Cyrus Mistry, pictured here during a TCS annual general meeting in 2016, and his family group Shapoorji Pallonji have proposed to end their dispute with Tata Group by selling their holdings in Tata Sons.   © AP

Shapoorji Pallonji hit back with a statement last week that referred to "the past oppressive actions and the latest vindictive move by Tata Sons" which it said made the relationship "infeasible."

Tata has not yet reacted to the statement.

From the stake sale, the Mistrys are hoping to net around 1.78 trillion rupees ($24 billion), an estimate they made based on the market capitalization of all listed Tata companies, according to local reports. The combined market capitalization of key listed Tata companies is around 13 trillion rupees, of which 9 trillion rupees comes from the group's cash cow, Tata Consultancy Services (TCS), the country's largest IT services provider.

The Mistrys valued Tata Sons at 7.9 trillion rupees. Tata group faces that huge bill if it wants to buy back Tata Sons shares, at a time when many Tata companies are struggling due to the new coronavirus pandemic which has killed more than 98,000 people in the South Asian country.

One of Tata's options, analysts have pointed out, is to sell 16% of TCS shares to monetize the stake for the share buyback of Tata Sons. This will bring its shareholding in TCS to 56%, Mumbai-based Institutional Investment Advisory Services estimated in a note released on Sept. 23. Tata Consultancy will still be a subsidiary in that scenario but the group will receive less cash return in the long run from the IT company.

"Tata Sons' ability to infuse equity and provide liquidity support to its businesses has been driven by TCS' dividends and [share] buyback," the advisory firm said. "The sale of 16% of TCS will restrict Tata Sons' financial flexibility and somewhat weaken its ability to hold the group together."

Another option is to borrow against the shares of listed group companies, but this has the undesirable effect of bloating overall debt and weakening the conglomerate's financial position. 

Tata faces some tough decisions but some analysts see the break with Shapoorji Pallonji as a good opportunity for the salt-to-software conglomerate to explore new strategic partnerships with other companies that see opportunities in tapping a population of 1.3 billion.

Deven Choksey, managing director of KR Choksey Investment Managers, said Tata can now find more compatible partners. "SP Group did not provide that strategic partnership," he said. "A strategic investor will be in a much better position to handle the subject."

Indeed, foreign companies have been keen to position themselves for a slice of the Indian market. Since March, another conglomerate, Reliance Industries, led by India's richest man Mukesh Ambani, has received as much as $20 billion in investments from companies including Google, Facebook and Intel to strengthen its digital and retail businesses.

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Try 1 month for $0.99

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends October 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to Nikkei Asia has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media

Nikkei Asian Review, now known as Nikkei Asia, will be the voice of the Asian Century.

Celebrate our next chapter
Free access for everyone - Sep. 30

Find out more