Encashing Seven Decades To Pay Debt

Tata Sons and Shapoorji Pallonji group are making the news again, this times it’s the later one needs to leave Tata Sons. The group is planning to raise fund against their shares in Tata Sons to repay their Rs 30,000 debt.

Tata Sons

A charitable trust founded in 1868, that runs a group which in 2019 stood at 86^th position of most valued companies globally, making it the only Indian company to come in top 100 according to Business Standards. 66% of the fund comes from trusts run by Tata family members and the highest induvial share in this trust is 18.4% owned by Shapoorji Pallonjii group. The Tata Group is uniquely structured. It is essentially a philanthropy that runs a commercial business. Tata Trusts exert control over Tata Sons, which exerts control over operating companies, several of which are listed and subject to scrutiny by external shareholders and accountable to a wider set of stakeholders. Tata Sons plays the intermediary role of pushing for performance from the operating companies and supporting the Tata Trusts’ goals. Sir Dobarji Tata Trust and Sir Ratan Tata Trust are the highest contributor.

Shapoorji Pallonji Group

A business house founded in the year 1865, currently successfully established in construction, real estate, textiles, engineered goods, home appliances, shipping, publications, power, and biotechnology sectors. It is considered to be one of the top business houses in the country. This king is right now sitting on the debt throne worth Rs 30,000 crores. The group has left no stone unturned to raise funds to meet their debts. There were sales of various assets in order to raise fund but that amount isn’t sufficient to pay off the Rs 30,000 crores liability. Only Rs 103 crores have been paid off. The group had promised to pay off within 90 days of listing Sterling and Wilson which was in November 2019, they got an extension upto September 2020 to pay the Rs 1,000 crores due which the group owes to the company. Earlier the group had tried to pledge their shares in Tata Sons to raise Rs 3,750 crore from Brookfield. The Tata Sons moved to supreme court to stop the pledging. The stay on pledging the Tata Sons’ shares owned by the group has made the situation difficult for them to repay their debts.

Tatas and Shapoorji Pallonji Group

The Tatas and Shapoorji Pallonji group, are associated with each other since past seven decades. Lately there were a few court cases involved but otherwise their relationship was quite healthy. In 2012 when Mr. Ratan Tata retired from the chairmanship of Tata Sons, he appointed Mr. Cyrus Mistry as his successor. Shapoorji Pallonji group belongs to the Mistry family. Cyrus had joined the board in the year 1991. After 4 years of him as the Chairman of Tata Sons, he was removed because the board had lost trust in him. The Mistry family had invested Rs 64 crores in 1965 and have earned Rs 872 crores as dividend in the year 1991 to 2016. The worth of their share in 2016 was Rs 58,441 crores.

My Take

I believe that the decision of Tata Sons to move to Supreme Court to get a stay order on pledging the shares owned by the Shapoorji Pallonji group is a right decision because if at all the group fails to pay this debt the shares a large amount of shares who go to the loan provider. These value of shares are really important for Tata group because Tata Sons runs all the companies associated to Tata. On the other hand, Tata Sons could help them out by buying those shares but, currently Tata Sons are not in a financial condition to buy them. If the do they have to either reduce their stake in Tata Consultancy Services, which would give a big blow to their cash flows. Reduction in cash flow is one problem other problem is that all the companies associated with Tatas would come under pressure. We all have to wait till mid-October for the judgement.

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Vijay Parekh has a master’s degree in Economics from Mithibai College. He has been awarded the Best Student Award, Arts for the academic year 2018-19. He has served Mithibai Economic Forum in the capacity of the Curator for two consecutive years, 2017-19. He has been associated with The Economic Transcript since its founding year. He is the co-founder of OwnYourOpinion, a content solution platform.