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Thursday, Aug 22, 2019

Lawsuits, Brexit to hit Tatas’ financials

businesspaper Updated: Jun 30, 2016 06:33 IST

MUMBAI: Since April, the Tata Group has been hit by a series of adverse legal orders, which could lead the Mumbai-based conglomerate paying around $1.89 billion (₹12,474 crore) to settle at least two claims, including infringement of intellectual property rights and breach of contract. The legal damages could impact Tata Steel and Tata Power, apart from Tata Consultancy Services (TCS), which is directly named in the infringement case.

The likely payout also comes at a time when the group is staring at a potential loss of business due to Britain’s decision to leave the European Union (EU). The group has a large presence in the UK — Jaguar Landrover is Britain’s biggest carmaker — and about 80% of Tata Motors’ revenues come from exports to countries outside the UK. While it could benefit from a fall in the British pound, which would make its exports cheaper, it could also be hit by limitations in trade practices that the EU is likely to impose on Britain.

Tata Steel, Tata Motors and TCS lost a combined ₹30,000 crore in market value on the Bombay Stock Exchange (BSE) on June 24, a day after the UK referendum, as investors sold shares fearing losses. Concern about a delay in Tata Steel’s earlier plan to sell its UK business and a fall in TCS’ business also hit sentiment.

The group is con testing claims of violations of intellectual property in a case filed by US-based Epic Systems. TCS has said there was no infringement and the company did not misuse or derive any benefit from Epic Systems’ software as alleged by the American firm.

In another case, on June 24, the International Court of Arbitration asked Tata Sons to pay Japan’s NTT Docomo $1.17 billion (₹7,950 crore) for breach of contract. NTT Docomo was Tata Teleservices’ joint venture partner. It filed an arbitration case against Tata Sons for not honouring an agreement to either find a buyer for its stake in the JV, or themselves buy out the Japanese firm’s holding.

When contacted, a Tata Sons spokesperson said: “As we said on June 24, we are studying the arbitration award. We will not be able to comment further at this stage, beyond maintaining our position that Tata Sons has always been and continues to be committed to discharge its contractual obligations in a manner consistent with the law.”

Tata Steel and Tata Power together own close to 60% in Tata Teleservices.

According to Nomura analysts Anirudh Gangahar and Archit Singhal, there is uncertainty over whether the Reserve Bank of India will give the go-ahead for the payout to NTT Docomo, as the central bank had not permitted the payout at the pre-determined price of ₹58.045 a share. It is also not clear whether Tata Sons will make the $1.17-billion payment itself, and what the delivery timeline will be for Tata Teleservices shares.

“If Tata Power was to buy the 134.6 million shares of Tata Tele at ₹58.045 a share, it would imply a cash outgo of ₹780 crore. Based on Tata Power’s financials for 2015-16, cash on standalone books was ₹50 crore, while consolidated cash was ₹1,670 crore. Tata Power would have to raise debt to fund this payment, which would hit its balance sheet.”

In its annual report for 2014-15, Tata Steel had said it was obliged to acquire 2,58,83,846 shares of TTSL if the sale option is exercised by Docomo.

First Published: Jun 30, 2016 06:33 IST

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