Tata Trusts Propose Restructuring of Tata Sons To Avoid Listing

Tata Trusts, the majority shareholder of Tata Sons Pvt., proposed that the holding company of India’s biggest conglomerate merge with two of its unlisted units to stave off a listing order.

Folding Tata Electronics Systems Solutions Pvt. and Tata Consulting Engineers into their parent will convert Tata Sons into a holding-operating company, allowing it to bypass regulations mandating the listing, Noel Tata-led Tata Trusts said in a statement. The proposal still needs a no-objection certificate from India’s central bank and approval from the Tata Sons board.

Noel Tata, chairman, Tata Trusts

The proposal marks a fresh turn in the battle between Noel, who leads the charities that own 66% in Tata Sons, and Natarajan Chandrasekaran, the chairman of Tata Sons. Tensions spilled into the open in a stormy Sept. 17 meeting when the board of Tata Sons defied Noel to reappoint Chandra, as he’s widely known, and decided to start preparing for a public listing. Noel’s objections to both the decisions were overruled, stoking a battle for control atop the Tata Group, the maker of everything from processed salt to SUVs.

As the Tata Sons board and its largest shareholder face off over who really controls the holding company of the group that had $185 billion in annual revenue, the friction risks creating instability for over two dozen listed companies it controls. It can also cast a shadow on the prestige projects it’s helming to bolster Indian Prime Minister Narendra Modi’s high-end technology ambitions.

In its statement, Tata Trusts said — without elaborating — that it had also shared the proposal with the Reserve Bank of India, the country’s banking regulator. Under RBI rules, Tata Sons’ size and nature make it a so-called Upper Layer Non-Bank Finance Company, requiring it to list. Tata Trusts is betting that by adding the operating units — especially the group’s emerging workhorse Tata Electronics which also manufactures iPhones for Apple Inc. — it will stay clear of the regulations.

A representative for Tata Sons did not immediately respond to a request for comment on the restructuring proposal.

The recast of Tata Sons, if this proposal were to go through, will have operating revenues of 1.05 trillion rupees ($10.9 billion), “far in excess of its income from financial assets” and “will not meet the principal business criteria” of a non-banking financial company, the Trusts said in the statement. It’ll then “also not meet the conditions applicable to a core investment company,” it added.

While a public float entails far greater regulatory and market scrutiny of Tata Sons, for Noel and Tata Trusts, the move risks diluting its ability to fend off any hostile takeover attempts.

Noel and his aides were evaluating a myriad of workarounds after the RBI refused to grant an exemption to Tata Sons, Bloomberg News reported earlier this month. These included whittling down Tata Sons’s balance sheet to less than the threshold that triggers the mandatory listing requirement or even splitting Tata Sons into two.