Tata Sons clears Tata Capital rights issue; board to decide size, timing

Tata Sons, the holding company of the Tata group, has cleared the rights issue for Tata Capital, the financial-services arm of the conglomerate, in a board meeting on Monday, according to sources.

 

The board of Tata Capital is meeting on Tuesday to discuss the amount and the timing of the issue.

 

Tata Sons, which holds 93 per cent in Tata Capital, will subscribe to the full extent of its portion in the rights issue, said a source close to the development.

 

Tata Sons did not reply to an email query.

 

The issue will establish the benchmark price for the planned listing, which is scheduled for September this year. The listing of Tata Capital is to comply with the Reserve Bank of India’s regulations, which require all upper-layer non-banking financial companies (NBFCs) to list by September. The rights issue of Tata Capital comes shortly after the company sought shareholders’ approval in January to amend its Articles of Association (AoA) to align them with the provisions of the Companies Act, 2013.

 

As an NBFC, Tata Capital is required to meet capital adequacy regulations, which specify the minimum 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 said as its loan portfolio and asset base grew, it would 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.

 

Tata Sons infused ₹6,097 crore into Tata Capital over the last five years. This underscores the group’s interest in focusing on lending, said a banker.

 

Tata Sons is unlikely to dilute its holding below 75 per cent in the planned initial public offering, according to a Fitch Ratings statement of February 13.

 

After Tata Capital’s merger with Tata Motors Finance (TMFL), TMF Holdings (a core investment company that owns TMFL) will hold 4.7 per cent in the merged entity.

 

Meanwhile, the Tata Sons’ board has cleared investment in Tata Projects and Tata International, said the source close to the development.

 

Tata Sons is set to receive a dividend of ₹24,931 crore in the first nine months this financial year from Tata Consultancy Services (TCS), India’s largest software exporter. TCS declared a special dividend of ₹66 per share, in addition to a ₹10 per share interim dividend for the December quarter. Earlier, it had declared ₹10 per share interim dividend in the first two quarters. These funds will be used to subscribe to Tata Capital’s rights issue and investment in Tata Projects and Tata International.