Pallonji Group seeks to sell Tata stake amid feuds
“The action by Tata Sons to block this crucial fund raise, without any heed for the collateral consequences, is the latest demonstration of their vindictive mind-set,” the SP Group said in a statement late Tuesday.Updated: Sep 23, 2020, 11:14 IST
Four years after a boardroom coup ended in the abrupt ouster of Cyrus Mistry as Tata Group chairman and sparked India’s biggest corporate feud, the tycoon’s family signaled its intent to sell its 18% stake in Tata Sons Pvt. -- a move that could trigger another fight over who buys the shares.
The Mistry clan’s cash-strapped Shapoorji Pallonji Group, the largest minority shareholder of the $113 billion Tata empire’s holding firm, wanted to borrow money by using a part of its Tata stake as collateral. Tata has opposed such a move that risk the possibility of shares ending up in the hands of unfriendly investors. In an ongoing legal battle, Tata told the Supreme Court Tuesday that it’s open to buying out Mistry instead, if the latter needed funds.
“The action by Tata Sons to block this crucial fund raise, without any heed for the collateral consequences, is the latest demonstration of their vindictive mind-set,” the SP Group said in a statement late Tuesday. “It is with a heavy heart that the Mistry family believes that a separation of interests would best serve all stakeholder groups.”
Although the statement didn’t specify what a separation would entail, the intention was apparent. While a divorce would help put a stop to the acrimonious fight between the two sides, the main concerns still remain for closely held Tata Sons: how to arrange funds for a purchase, and even worse, the possibility of the Mistrys selling their stake to an investor who doesn’t share the group’s long-term vision.
A representative for Tata Sons declined to comment.
Tata Sons is likely to have the first right of refusal for SP Group’s stake if they want to cash out, according to Harish H.V., managing partner at ECube Investment Advisors in Bengaluru. “But valuation could be the bone of contention.”
The bad blood between the two sides started when Cyrus Mistry, 52, who worked closely with Ratan Tata, 82, before taking over the chairman of Tata Sons Pvt. in 2012, sought to reduce Tata Group’s debt. In the process, he threatened to undo the legacy of the conglomerate’s patriarch.
The two families belong to the Parsi Zoroastrian community, which fled persecution in Persia centuries ago before finding refuge in western India. The Tata Group has been traditionally headed by a Parsi until 2017, when Tata brought in a veteran executive from outside the close-knit community to replace Mistry.
Pallonji Mistry, 91 -- Cyrus’s father -- has a net worth of $22.8 billion, most of it from his holdings in various Tata companies, according to the Bloomberg Billionaires Index. Since his ouster, Cyrus has filed legal challenges to his removal from the board of Tata Sons and argued against Tata Sons turning into a private limited company -- a move that has restricted the Mistry family’s ability to sell its stake freely.
India’s Supreme Court on Tuesday barred the Mistry group from pledging or selling any Tata shares until Oct. 28, when it starts hearing final arguments in the case.
Back in 2016, immediately after the ouster of Mistry as chairman of Tata Sons, Tata family trusts had reached out to sovereign wealth funds and other long-term investors to assess their interest in purchasing the Mistry family stake if it became available, people familiar with the matter said then.
“This is the first time the Shapoorji Pallonji Group has expressed willingness to sell Tata shares,” said Arun Kejriwal, director at KRIS, an investment advisory firm in Mumbai. “The group is in a financial mess. The best option before the group is to sell the stake to the right suitor to tide over the crisis.”
Founded in 1865, the Shapoorji Pallonji Group has built some of Mumbai’s landmarks, including the Reserve Bank of India building. Its businesses span infrastructure and home appliances.
The SP Group had 92.8 billion rupees ($1.3 billion) in external debt at its main holding vehicle, Shapoorji Pallonji and Company Pvt., as of end-February, according to Care Ratings Ltd. The group-wide debt was estimated by the local credit rating firm to be more than 300 billion rupees as of March 2019.
The 155-year-old SP Group, which includes real estate, infrastructure and home appliances, was in preliminary discussions to borrow as much as $1 billion by pledging a part of its Tata Sons stake to pay maturing debt after asset sales stalled amid the coronavirus pandemic, Bloomberg News reported in March, citing people familiar with the matter.
The Tata Group has taken decisions that have destroyed value and total debt in its major companies has increased by about 1 trillion rupees over the last three years, according to the SP Group’s statement.
“The impact of these actions continue to hurt minority shareholders,” it said, adding that “the Mistry family were in the midst of raising funds against the security of their personal assets” to “protect the livelihoods of its 60,000 employees and over 100,000 migrant workers.”