Rise in Tata Sons' expenses due to legacy issues: Mistry

Ousted Chairman of Tata Sons Cyrus Mistry on Tuesday said financial irregularities and legacy issues had led to the rise in expenses and impairments at the industrial conglomerate.

In a statement, Mistry's office observed that some fundamental changes had taken place between the last five years of Ratan Tata's tenure and the period under Mistry's leadership.

"In the five years preceding 2012, several group centre (GCC) members held what were deemed "non-executive" roles in Tata Sons. As such, they, including Mr. Tata, drew their compensation as commissions from Tata Sons instead of salaries which skews base year comparisons," the statement said.

"It is also public knowledge that several erstwhile directors of Tata Sons drew additional parallel commissions from operating group companies," said the statement issued in reply to a full-page newspaper advertisement issued by Tata Sons on November 11.

In Mistry's defence, the statement elaborated that the GCC reporting to Mistry drew remuneration only from Tata Sons and that no GCC member, including Mistry, took any commissions from any of the operating group companies.

"This arrangement was a cleaner and more transparent system to ensure that those involved in running the group were remunerated only by the group's core investment company and not by the operating companies," the statement said.

The statement informed that another significant difference was due to the cessation of services by Niira Radia (Vaishnavi Communication) who was being paid approximately Rs 40 crore per year.

"She had been replaced by Arun Nanda (Rediffusion Edelman) who had been brought in by Ratan Tata at a cost of Rs 60 crore per year for PR support just prior to Mistry taking charge," the statement said.

"It is worth noting that a part of this PR infrastructure was also provided to the Tata Trusts, while paid for by Tata Sons."

Mistry's office further said Tata Sons bore the entire office costs of the Chairman Emeritus Ratan Tata.

"This figure was about Rs 30 crore in 2015, a significant amount of which was for the use of corporate jets. This dual structure and attendant costs did not exist earlier," the statement said.

On the allegation that impairments indicate an inability to turn around inherited hotspots, the statement said the efforts of Tata Sons under Mistry's leadership was to look at strategy, structure and leadership changes to drive operational improvements before examining mergers, exits or shutdowns.

On specifics, the statement detailed that the impairments and write downs at Tata Sons were due to legacy issues, largely relating to TTSL (Tata Teleservices) and other investments of questionable nature such as Nagarjuna refineries (Rs 400 crore) and SASOL JV.

"One investment in Piaggio Aero, a company in the aerospace sector with a friend of Mr. Tata, was especially distressing. Tata Sons decided to exit the company at a commercial loss of Rs 1,150 crore," the statement said.

"This was after the efforts of Bharat Vasani and Farokh Subedar who managed to recover Rs 1,500 crore, overcoming the objections of Ratan Tata who in contrast favoured increasing investments in that company."

"Today, the company is, for all practical purposes, nearly bankrupt."

The statement added that Mistry focussed on ensuring that Tata Sons built its reserves and resources to handle the necessary writedowns as the portfolio restructured.

"Between FY11 to FY15, Tata Sons networth, after considering impairments increased from Rs 26,000 crore to Rs 42,000 crore, significantly strengthening the ability to absorb future shocks," the statement added.

--IANS

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