Noel Tata seeks board vote on Tata Sons rejig and Rs 25,000 crore SP payout: Report

Noel Tata has asked the Tata Sons board to vote on restructuring and an SP Group payout. The proposals address RBI compliance and the minority shareholder's planned exit.

In Short

• Noel Tata seeks board vote on Tata Sons reorganisation proposals
• Proposal to merge subsidiaries to meet RBI regulatory requirements
• Plan aims to reclassify Tata Sons as operating company, not NBFC

Tata Trusts Chairman Noel Tata has sought a board vote on a proposal to reorganise Tata Sons to address the Reserve Bank of India's (RBI) regulatory requirements for an IPO and another to facilitate a Rs 25,000 crore payout to minority shareholder Shapoorji Pallonji (SP) Group, reported CNBC-TV18.

Noel Tata has written to the Tata Sons board seeking to place both proposals on the agenda of its November 26 meeting. The letters were sent on October 29 to Tata Sons Company Secretary Suprakash Mukhopadhyay and copied to all directors, the report said.

The first proposal relates to Tata Sons' regulatory status. The RBI, in a letter dated September 11, had declined the company's request to voluntarily surrender its Certificate of Registration (CoR) and advised it to comply with the rules applicable to NBFC-Upper Layer entities.

To address this, Sir Dorabji Tata Trust and Sir Ratan Tata Trust had proposed merging two wholly owned subsidiaries, Tata Electronic Systems Solutions (TESS) and Tata Consulting Engineers (TCE), with Tata Sons.

The proposed merger is aimed at making Tata Sons an operating company with business activities beyond holding investments. This could help the company move out of the definition of a non-banking financial company (NBFC) and a core investment company (CIC).

Noel Tata has sought in-principle approval for the proposal. He has also asked the management to present the legal advice it has received and its assessment of the plan, CNBC-TV18 reported.

Tata Sons would first need to seek the RBI's no-objection before taking the merger scheme to the National Company Law Tribunal (NCLT). The proposal also asks the management to examine the possibility of merging Tata Electronics Products and Solutions with Tata Sons once TESS's holding in it reaches 100%.

RS 25,000 CRORE PROPOSAL FOR SP GROUP

The second proposal concerns the SP Group's request for an exit from its investment in Tata Sons.

Noel Tata has proposed that Tata Sons buy back and cancel enough of the SP Group's shares to provide a gross consideration of Rs 25,000 crore.

The shares would be valued at fair market value under Rule 11UA of the Income-tax Rules by a merchant banker or registered valuer. The payment could be made in two or more instalments over 18 months through a selective capital reduction.

The proposal would require approval from the NCLT and a special resolution of shareholders. It also includes a condition that SP Group entities provide a full and final settlement of their claims against Tata Sons, its directors and shareholders.

The proposal says the funds would be raised without fresh borrowing. Possible sources include internal cash flows, the sale of some Tata Sons holdings in listed companies, third-party investments in newer businesses and listing some of those businesses through an offer for sale.

Noel Tata has invoked Article 121B of Tata Sons' Articles of Association, which allows any director to place a matter before the board with at least 15 days' notice. Each letter includes a draft resolution that he wants the board to vote on, the report said.

The two proposals address separate issues facing Tata Sons: its regulatory status and the SP Group's request to monetise its investment.

Neither proposal has been approved yet. The board will consider the resolutions at its November 26 meeting. Several details, including the valuation and timelines for the RBI application, remain to be finalised.

- Ends