Change in Tata structure could affect rating, says S&P

Mumbai: Any change in the Tata Group's structure that makes a clear controlling entity less obvious or weakens the holding company's credit profile could affect the view of the group's credit quality, and thereby, individual ratings, rating agency S&P said in a bulletin released on Tuesday.

The leadership transition or changes in the group structure or stakeholder priorities may raise questions around the continuity of the group's strategy and financial policy, and the likelihood of group support over the longer term, the rating agency said.

“Our current assessment of group support relies on Tata Sons being a single, key controlling entity that derives its strength from its ownership in multiple, diversified companies. We assess its credit quality to be solidly investment grade. Any change in structure that makes a clear controlling entity less obvious or weakens the holding company's credit profile could affect our view of the group's credit quality, and thereby, the notch up for individual ratings,” S&P Global Ratings said.


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Tata Sons the holding company for the $185 billion steel to aviation group and its controlling shareholder Tata Trusts have been at loggerheads after the September 17 board meeting that exposed a sharp divide between Noel Tata and the rest of the Tata Sons board members. The Tata Sons board ganged up and voted to reappoint N Chandrasekaran as chairman and embark on the process of listing the holding company. Noel Tata had opposed both moves.

S&P said that though a potential listing of holding company Tata Sons and leadership transition at the group will have no immediate impact on the credit ratings on group entities, the leadership transition or changes in the group structure or stakeholder priorities may raise questions around the continuity of the group's strategy and financial policy, and the likelihood of group support over the longer term.

“This is particularly relevant because rated companies such as Tata Steel, Tata Power, and Tata Capital have significant growth plans, and JLR is going through a business transition” S&P said.

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S&P currently rates, multiple Tata Group companies with credit ratings at or just below India’s sovereign rating of BBB. Tata Steel, Tata Motors, Tata Power, Tata Capital and Jaguar Land Rover Automotive Plc are some of the companies rated by S&P.

“We view all entities to be strategically important to Tata Sons, resulting in up to three notches of support….The credit profiles of rated companies have also improved over the past few years, benefitting from the group's relatively conservative financial policy,” S&P said.

Tata Sons going public could have implications on the assessment of group support should the introduction of public shareholders further increase scrutiny of investment decisions, capital allocation, and support for weaker group entities, the rating agency said. “This may result in greater emphasis on financial returns, capital discipline, shareholder distributions, leverage, and accountability for the performance of strategic investments. As an example, previous cases of Tata Sons' support to Tata Teleservices Ltd. reflected the group's willingness to pay even though the economic benefits were not apparent,” S&P said adding that given the size of a Tata Sons' initial public offering, it will take several years for the proportion of public shareholders to become significant.