Chandra completes a month in office, tackles Tata's legacy issues

As Tata Sons chairman N Chandrasekaran completes a month on Tuesday at the corner office in Bombay House, he is taking all the legacy issues head on. He has buried the hatchet with NTT Docomo over the buyback of latter’s shares, signed an agreement with Volkswagen to develop new products with Tata Motors while closed the pension liabilities of employees of Tata Steel Europe effective from this month-end.

Former Chairman Cyrus Mistry had warned that the Tata group was staring at $18-billion of potential write-downs and blamed it on the wrong acquisitions made by his predecessor and group patriarch, Ratan Tata. 

Mistry had highlighted the “legacy hotspots” in Indian Hotels, Tata Motors passenger car division, Tata Steel Europe, Tata Power Mundra, and Tata Teleservices that were hurting the group’s growth in the last few years.

Chandra, who is quietly building his team A, managed to sign an out-of-court settlement with NTT Docomo with the latter agreeing to drop all the litigation against the Tatas. Though the matter is currently pending in the Delhi High Court, group watchers said the initiative shows the willingness of the new Tata head to settle the issues once and for all. “The reputational damage to the Tatas due to Docomo litigation was immense. The out-of-court settlement with Docomo is a big step to restore credibility that the Tatas do fulfill their promises,” said an investment banker. 

In the past one month, insiders said, Chandrasekaran was taking advice from the Tata patriarch to make a blue print to bring the group back on its rails. For example, Tata Motors, which lost a lot of funds in Nano project, signed an agreement with German carmaker Volkeswagen this month to jointly design cars for the Indian market. 

Chandra travelled to the Geneva autoshow to showcase the new car from Tata Motors – the Racemo — a two seater sports car. It’s the first car under Tata Motors’ sub brand – Tamo, which symbolises changes that are taking place in the company. But one of the biggest milestone that the Tata group managed to remove was the pension fund in United Kingdom that was losing $1 million a day. 

On March 7, Tata Steel UK said it would close its final salary pension scheme to accruals from March 31. From the next financial year, the employees of Tata Steel subsidiary will save for their retirement through a new pension scheme. This will help the steel major to negotiate a merger deal with German giant Thyssenkrupp to merge their European steel assets. 

“The high liability pension fund was a big hurdle for Tata Steel to find a solution to the European mess. Now it can take a call on whether to merge its operations with Thyssenkrupp or retain the European operations on its own,” said an analyst. Tata Sons, under Chandra, is also taking steps to revive its investments that fell by 50 per cent in 2016 and even in the current financial year.  Insiders said Tata Sons had launched a bond issue to raise Rs 3,000 crore and was planning to sell shares in Tata Consultancy Services to raise another Rs 9,000 crore. 

“These funds will be used to revive investments and make Tata Sons balance sheet more stronger,” said a banker.

The Tata group stocks remained stable in the last one month since Chandra took over, thus showing the investors confidence in the new management and arresting a fall that was triggered when Mistry was removed in October last year.