June 19, 2017 9:12 pm JST

Tata Sons to buy Tata Motors stake from Tata Steel

The $590.5 million deal will help unwind complex group structure

ROSEMARY MARANDI, Nikkei staff writer

© Reuters

MUMBAI -- The controlling shareholders of Tata Group are a planning to buy out group company Tata Steel's 2.85% stake in Tata Motors for an estimated 38 billion rupees ($590.47 million), seen by market watchers as a step toward decluttering the cross-holding structure of the $104 billion conglomerate.

Tata Sons will buy about 83.6 million shares in Tata Motors at or around the prevailing stock price on the date of the planned acquisition, it said in a filing to the Bombay Stock Exchange. The shares, calculated at Friday's close of 455.75 rupees, translates into a deal worth 38 billion rupees.

Shares in Tata Motors ended 0.7% lower at 452.3 rupees on the BSE on Monday while those in Tata Steel rose 3.43% to 519.30 rupees.

At the end of March, Tata Sons held 28.71% of Tata Motors and 29.75% of another group company, Tata Steel. In a complicated structure, Tata Steel also holds a 2.9% stake in Tata Motors while the car maker owns 0.46% of the steel maker.

Local media reports suggest that the restructuring of the cross-holding has been at the top of the agenda for new Group Chairman N. Chandrasekaran since he took over in February this year. It is seen as a step to not just reduce debt in some major companies but also to unwind the complex structure to ease the process for stake sales.

The Tata Group's labyrinth of cross-holding also include Tata Power's 4.7% stake in Tata Communications; cross-holdings between Tata Global Beverages and Tata Chemicals; a stake in Titan held by Tata Chemicals; and stakes in Tata Chemicals controlled by group companies such as Tata Coffee, Tata Motors and Tata Voltas.

An analyst at Institutional Investor Advisory Services, Hetal Dalal, said such cross-holdings were the result of historical business dealings. Whenever a company needed money, the capital allocations were made through Tata Sons or the listed companies which had liquidity.

"Over the years they have tried to simplify the structure, so even when Tata Sons is acquiring shares from Tata Motors it is another way to simplify the holding structure," Dalal said. "Cross-holdings have been a concern for investors for a while, so they are trying to unwind and make Tata Sons the holding company for the entire group. A simplified structure provides clarity to investors in terms of chain of command and enables Tata Sons to have better control over the promoter votes on shareholder resolutions. Additionally, unwinding the cross-holdings will enable Tata companies to monetize some of their holdings in the group."

The unwinding process began in 2015 with Tata Steel selling 38.5 million Tata Motors shares to institutional investors and another 37.9 million shares to Tata Sons.

On Thursday, private equity firm Warburg Pincus bought a 43% stake in Tata Technologies for $360 million. The stake included Tata Motors' 30% holding and Tata Capital's entire 13% share.

Investment bank JP Morgan reckoned that the funds from Tata Technologies stake sale could help Tata Motors shed debt of $ 2.9 billion. "The noncore investments in Tata Motors (notably its Tata Sons' investments) are not valued in any meaningful manner by either us or the market," it said.

Asia300

Tata Steel Ltd.

India

Market(Ticker): BOM(500470)
Sector:
Industry:
Non-Energy Minerals
Steel
Market cap(USD): 9,472.47M
Shares: 971.21M
Asia300

Tata Motors Ltd.

India

Market(Ticker): BOM(500570)
Sector:
Industry:
Consumer Durables
Motor Vehicles
Market cap(USD): 18,942.5M
Shares: 3,395.85M

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