Tata Trusts Plan Tata Sons Shake-Up To Sidestep Stock Market Listing

Tata Trusts, which hold a 66 per cent stake in Tata Sons, have proposed a restructuring of the group's holding company that could allow it to avoid the regulatory classification that has put pressure on it to list on the stock market.

The proposal involves merging two companies -- Tata Electronics Systems Solutions Private Limited (TESS) and Tata Consulting Engineers (TCE) -- with Tata Sons Private Limited (TSPL). The Trusts have asked the Tata Sons board to consider the proposal and take the necessary steps, including seeking a no-objection certificate from the Reserve Bank of India (RBI).

"The Tata Trusts today, as majority shareholders with a 66% stake in Tata Sons Private Limited (TSPL), outlined a strategic reorganisation plan for the Company which, when given effect to, would ensure that the reorganised entity would neither be a 'Non-Banking Financial Company' (NBFC) nor a 'Core Investment Company' (CIC)," Tata Trusts said in a statement. 

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If implemented, Tata Sons, rather than functioning primarily as the holding company for the Tata Group, would once again have substantial operating businesses and revenues of its own, alongside its role as the group's parent.

The Tata Trusts say this would mean the reorganised entity would no longer meet the criteria for either a non-banking financial company (NBFC) or a core investment company (CIC).

This new development comes amid friction between Tata Sons and Tata Trusts as the company's board is divided over the future structure of the holding company and whether Tata Sons should ultimately become a listed company.

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What Tata Trusts Is Proposing

The Trusts said it had outlined a "strategic reorganisation plan" for Tata Sons. Under the proposal, TESS and TCE would be merged with Tata Sons.

"The Tata Trusts today, as majority shareholders with a 66 per cent stake in Tata Sons Private Limited (TSPL), outlined a strategic reorganisation plan for the company which, when given effect to, would ensure that the reorganised entity would neither be a non-banking financial company (NBFC) nor a core investment company (CIC)," the Trusts said in a statement.

"The Tata Trusts believe that the proposed reorganisation and action plan for compliance would be in the best interests of the Tata Group as well as its stakeholders, in addition to being a regulatory permissible and compliant form of reorganisation of a CIC. The Tata Trusts have, accordingly, written to the TSPL Board to consider and approve the proposal, and to take necessary steps, including applying to the RBI for the necessary 'no-objection certificate' as required for the proposed merger and reorganisation of TSPL. The Tata Trusts, along with TSPL, will engage with the RBI on all aspects of the proposed reorganisation," the statement read. 

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The proposed structure is based on an organisational model Tata Sons followed for much of its history. Tata Trusts said that for almost 80 years of its 100-year existence, Tata Sons had operating businesses and operating revenues, which helped finance other businesses and ventures within the group.

One example was Tata Consultancy Services.

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"To recall, as recently as 2004, Tata Consultancy Services was a business division of TSPL before it was demerged into a separate subsidiary. This was also the case with other operating businesses of TSPL. Accordingly, the proposed reorganisation will result in TSPL reverting to its previous operating model, with its own operations and revenues, in addition to being a holding company for the Tata Group. This will also be in line with the previous classification (after 2004) by RBI of TSPL as a "non-banking, non-financial company," the Trusts said.

Why TESS and TCE matter

The two companies proposed to be merged into Tata Sons are operating businesses rather than financial holding entities. 

Tata Electronics is the Tata Group's semiconductor and electronics manufacturing business. Its activities include semiconductor manufacturing and packaging, electronics manufacturing for global technology customers, precision components for smartphones and consumer electronics, and the development of India's semiconductor supply-chain ecosystem.

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Tata Consulting Engineers is an engineering consultancy company. It provides end-to-end engineering and project-management services. The company delivers projects from the concept stage through to commissioning and has executed projects across 60 countries since 1962. Its areas of expertise include power, infrastructure and resources, as well as the management of large-scale projects.

The proposal would bring these businesses directly into Tata Sons.