5% stake in 5 firms to cost Tatas Rs 12.5k crore

A year ago, Tata Sons could have bought this stake for Rs 8,000 crore

Tata group shares have recovered most of their lost value since the legal battle broke out between the conglomerate and former Tata Sons Chairman Cyrus Mistry.

The group’s plan to increase stakes in five key firms where holding company Tata Sons’ stake are low will cost Rs 12,475 crore.

The combined market value of Tata Motors, Tata Steel, Tata Power, Tata Chemicals and Indian Hotels stood at Rs 2,49,492 crore on January 27 against Rs 2,52,979 crore on October 24, the day Mistry was sacked.

A year ago, the combined market capitalisation of these five firms was Rs 1,58,841 crore and the five per cent stake increase in each company would have cost Tata Sons Rs 7,942 crore.

Tata insiders say with the Mistry episode behind them now, the new Chairman, N Chandrasekaran, could look at increasing the group’s stake in these five companies through the creeping acquisition route. Few independent directors on the boards of these companies had supported Mistry against the Tatas.

The promoter’s stake in Tata Steel and Tata Chemicals is at 31 per cent, while in Tata Motors, it is at 34.73 per cent. At the peak of the Tata-Mistry war, Tata Sons had raised its stake in Tata Motors by buying an additional stake of 1.73 per cent, investing Rs 2,430 crore. Mistry had wanted to increase Tata Sons’ stake in these companies but the group had funded other investments at that time.

According to an internal Tata document, the group was planning to raise its stake in these companies by 10 per cent in the long term, “given the changing dynamics of votings at the shareholders meeting and increase in shareholders activism”. 

In 2015-16, Tata Sons invested Rs 6,300 crore, which was Rs 7,100 crore less than the projected investment of Rs 13,400 crore. The group holding company deferred investments of Rs 6,000 crore to 2016-17. It also purchased cross-holdings worth Rs 700 crore.

The holding company had considered selling part of its 74 per cent stake in Tata Consultancy Services and issuing fresh capital of Tata Sons for equity purchases and infusing funds into group companies.

In October last year, Tata Sons had to deposit $1.2 billion with the Delhi High Court after NTT Docomo sued it for not honouring its commitment to buy back its 27.5 per cent stake in Tata Teleservices.