Mistry did not keep us in the loop on Welspun deal, says Tata Sons

Rising Tata Power debt worries Tata Sons

Tata Sons has said the acquisition of the Welspun group’s renewable energy subsidiary by Tata Power was presented to its board as a fait accompli.

In its petition to the National Company Law Tribunal (NCLT), Tata Sons, the holding company of the Tata group, said the Welspun transaction was expected to cost Rs 6,700 crore ($1 billion) and any additional debt would affect Tata Power’s credit rating.

Rating agencies, presuming support from Tata Sons, had assigned a higher rating to Tata Power, over and above which the additional debt was undertaken.

“As a promoter, Tata Sons was practically left in the dark about such a significant transaction while (Cyrus) Mistry was chairman of Tata Power,” the Tata Sons petition said.

A note on the proposed Welspun acquisition was circulated to directors of Tata Sons on May 31, 2016. But it was not clarified that definitive agreements were to be signed imminently. On June 12, 2016, Tata Power announced the Welspun acquisition.

Former Tata Sons chairman Cyrus Mistry had earlier said Tata Power’s debt was a legacy issue because it had bid aggressively for the Mundra project based on cheap Indonesian coal.

“As regulations changed, the losses in 2013-14 alone amounted to Rs 1,500 crore. Given that Mundra constitutes Rs 18,000 crore of capital employed (40 per cent of the total), this substantially depresses the return on capital for Tata Power as well as carries the risk of considerable future impairment,” Mistry had said in a letter to Tata Sons soon after his ouster on October 24, 2016.

In its petition, Tata Sons said a note on Welspun was circulated to its directors without any deliberations on the matter despite the Tata Power management being aware that the financing of the acquisition would require the company to raise debt, approval for which would be required from Tata Sons.

Later in Tata Sons board meetings on June 29 and 30, the Tata trusts nominees, Nitin Nohria and Vijay Singh, repeatedly said the Welspun acquisition should have been deliberated at a much earlier stage instead of being presented as a fait accompli.

The trusts’ nominee directors approved the financing of the Welspun acquisition, given that definitive agreements had been executed and the deal had been announced.

The matter will be heard on January 31 by the NCLT.