If Tata Sons gets listed, it will be a windfall for its shareholders, including Tata Trusts, headed by Ratan Tata. Tata Sons is estimated to be valued at Rs 11 lakh crore. If Tata Sons is listed through an IPO at a valuation of Rs 11 lakh crore, a 5% offering would be worth Rs 55,000 crore— India’s biggest public offering.
Tata Sons, led by chairman N Chandrasekaran, had explored the possibility of getting an exemption from the RBI, which first issued the list in September 2022. The RBI on Thursday again released the list of 15 NBFCs in the upper-layer category.
Tata Sons declined to comment. An email sent to Ratan Tata, who is also the chairman emeritus of Tata Sons, didn’t elicit any response till the time of going to press.
According to the RBI, upper-layer NBFCs have to follow a stringent disciplinary structure with a mandatory listing within three years of being notified. The requirement for public listing, akin to those mandated for private banks, is to ensure diffused ownership. Size and interconnectedness are key factors that place an NBFC in the upper layer.
An analyst said that while Tata Sons shares will get converted into a liquid currency through the IPO, there will be a disconnect on the valuation front as investors typically apply a discount to holding companies.
Though Tata Sons has time to comply with the RBI notification, sources said the company could evaluate options, including a reorganisation so that it is excluded from the upper-layer list.
The RBI requires upper-layer NBFCs to prepare a board-approved road map for implementation of its regulations within three months from the date of notification. It is unclear whether the board of Tata Sons has prepared and approved such a plan.
Apart from Tata Sons, its indirect subsidiary, Tata Capital Financial Services, is also included in the list. Tata Sons is merging Tata Capital Financial Services into Tata Capital, which is making itself “listing-ready”. Tata Sons, in its FY23 report, said: “The simplified corporate structure will create a larger unified entity with a stronger capital and asset base, and shall help us move towards a listing-ready structure aligned with the RBI’s regulations.”
In December 2004, Ratan Tata, who was then chairman of Tata Sons, told The Sunday Times in Mauritius that he would like to list the holding company of the conglomerate. “It would not be very different from Berkshire Hathaway (founded by Warren Buffett),” Tata said. He added: “One option was to use funds to buy or grow another TCS-style company and use it as a springboard to float Tata Sons itself.” Tata Sons became aggressive on overseas M&As after 2004, snapping up companies like Corus, Jaguar Land Rover, Eight O’Clock Coffee and British Salt.
In 2017, late Tata Sons chairman Cyrus Mistrysaid in a court affidavit that his family, the single-largest individual shareholder of the company, had objected to Tata Trusts’ 2014 plan of listing Tata Sons in London. The plan was to issue shares with differential voting rights (bonus non-voting shares) through primary and secondary listings on the LSE. Mistry said he was against the proposal as legacy hotspots were not fully resolved and that shares with differential voting rights were denounced globally as investor-unfriendly. He added that the IPO could be re-looked at a more appropriate time. At a Rs 11-lakh crore valuation, the Mistry family’s 18.4% stake in Tata Sons would be worth just over Rs 2 lakh crore.
In comparison to Tata Sons’ estimated IPO size of Rs 55,000 crore, LIC’s IPO in 2022 was worth Rs 21,000 crore, the biggest listing in India so far, while Paytm’s Rs 18,300-crore offer in 2021 is the second biggest.
In October 2021, the RBI came out with a framework for NBFCs, categorising them into different layers based on certain parameters, after the failure of IL&FS, which was one of India’s largest core investment companies, in late 2018. “The NBFCs classified as upper layer will have to comply with the regulatory provisions as applicable to them,” said J Sagar Associates’ partner Lalit Kumar.