Tata Capital seeks shareholders' nod on related party deals with Tata Steel

RPTs with Tata Steel to rise to Rs 12,000 cr

Tata Capital, the financial services arm of the Tata group, has asked shareholders to vote on its related party transactions with Tata Steel which is estimated to go up to Rs 12,000 crore in the next financial year. These transactions will be equivalent to approximately 89.83 per cent of the annual consolidated turnover of the company for the financial year 2022-23, the company has said.

In a notice to its shareholders, Tata Capital said Tata Sons Private holds 92.83 per cent stake in the company and also holds a 32.24 per cent stake in Tata Steel, and hence all its transactions with Tata Steel will fall under related party transactions.

Giving details, Tata Capital said under its corporate programme it provides the facility of factoring of receivables from the distributors, dealers and customers of Tata Steel along with other financing facilities such as leasing to Tata Steel. According to the factoring arrangement, Tata Steel discounts with Tata Capital the sales receivables from its customers arising out of goods sold to them on credit. For these facilities, Tata Steel pays discounting charges to Tata Capital.

The company said under the factoring facilities, its exposure is to the customers of Tata Steel without any recourse to Tata Steel and these are evaluated on an independent basis for each customer. But these factoring transactions will still be regarded as related party transactions with Tata Steel.

At the same time, Tata Capital currently extends lease facilities to Tata Steel where the underlying assets are passenger cars, capital goods, commercial vehicles, or other assets as per Tata Steel’s requirements. For these lease facilities, the steel firm pays lease rentals to Tata Capital.

To grow its business, Tata Capital said it plans to continue these transactions with Tata Steel which will help it to generate revenue and enhance operations. The aggregate value of these transactions (including transactions earlier entered into by Tata Capital Financial Services Limited  (TCFSL), during FY 2023-24 is estimated to be up to Rs 3,510 crore, i.e. approximately 26.28 per cent of the annual consolidated turnover of the company for the financial year 2022-23. But this will rise to Rs 12,000 crore by next financial year and hence the shareholders' resolution seeking approval, the company said.

The audit committee of Tata Capital has cleared these related party transactions with Tata Steel for an aggregate value of up to Rs 3,510 crore during FY 2023-24 and up to Rs 12,000 crore for FY 2024-25. The committee has noted that the said transactions will be on an arm’s length basis and in the ordinary course of business of the company. The company has also sought shareholders’ approval to raise Rs 20,000 crore of additional debt as non-convertible debentures.

The voting on the resolutions will end on March 17.