Tata Capital's board approves IPO plan, to issue 230 mn new shares

Financial services company also approves rights issue of Rs 1,504 cr as it moves to comply with RBI regulations

The board of Tata Capital, the financial services arm of Tata Sons, on Tuesday cleared an initial public offer (IPO) and a rights issue, making it the second company from the Tata group to launch an IPO within two years after Tata Technology was listed in November 2023.

 

In a regulatory filing, Tata Capital said the IPO will issue equity shares of face value of ₹10 each, and it will comprise a fresh issue of up to 230 million shares and an offer for sale of equity shares by its existing shareholders. The IPO is subject to market conditions, and regulatory clearances, the company said. 

The company did not reveal the size of the IPO, but banking sources estimate the IPO to raise up to $1.5 billion. As per Unlisted Zone, a platform for buying and selling unlisted stocks, shares of Tata Capital are trading around ₹1,000 a piece in the unlisted market. In the NBFC space, Tata Capital is ranked 7th in terms of loan book at ₹1.57 trillion as on March 2024.  Several conglomerates are planning to launch big-ticket IPOs in the new financial year beginning April 1. Among the conglomerates are Reliance Industries, which is mulling over listing its telecom arm Jio, and the Adani group, which is looking to list its airport business. LG Electronics, the Korean electronics giant, is also planning to raise up to $1.5 billion. Tata Capital’s board also cleared a rights issue of face value of ₹10 each to raise ₹1,504 crore before the IPO is launched. Tata Sons, the holding company of the Tata group, will subscribe to the entire portion of the rights issue. The listing will comply with the Reserve Bank of India (RBI) regulations that require all upper-layer NBFCs to list by September. Tata Sons was also flagged by the RBI as an NBFC-upper layer but it has repaid its entire bank debt and applied to the central bank to reclassify it as a core investment company. The Tata Sons application is currently pending with the RBI. 

  Tata Sons, which holds a 93 per cent stake in Tata Capital, is unlikely to dilute its holding below 75 per cent in the IPO, said Fitch Ratings in a statement on February 13.

  The holding company has infused ₹6,097 crore in Tata Capital in five years, with ₹2,500 crore infusion in FY19, ₹1,000 crore in FY20, ₹594 crore in FY23, and ₹2,003 crore in FY24. This underscores the group’s intent to increase its focus on the lending business, said a banker. After Tata Capital’s merger with Tata Motors Finance (TMFL), TMF Holdings (a core investment company that owns TMFL) will hold a 4.7 per cent stake in Tata Capital. Other Tata group firms and IFC hold small stakes in Tata Capital.

  Tata Capital's approval for the rights issue comes after the company sought shareholders' nod in January to amend its Articles of Association to align with the provisions of the Companies Act, 2013. Tata Capital, as an NBFC, is required to meet capital adequacy regulations dictating the minimum capital a company must hold as a percentage of its risk-weighted assets and risk-adjusted off-balance sheet items. In its communication to its shareholders, the company emphasised that as its loan portfolio and asset base continue to grow, it will need additional capital to maintain the required capital adequacy ratios. To meet this need, the company plans to raise capital periodically, including through rights issues, the company had said in a communication to the shareholders.

 

(With inputs from Samie Modak)