Noel Tata sends two letters over SPG's Rs 25,000 crore request and to evaluate merger options to avoid D-St listing

Tata Sons director Noel Tata has asked the company's board to examine a Rs 25,000 crore funding request from minority shareholder Shapoorji Pallonji (SP) Group through a proposed capital reduction, while also seeking a detailed evaluation of the Tata Trusts' plan to restructure the group holding company to preserve its unlisted status.

In two letters seen by ET dated October 29 to Tata Sons company secretary Suprakash Mukhopadhyay, Noel has asked management to present both proposals at the company's November 26 board meeting, including their valuations, legal and regulatory implications, funding arrangements and implementation timelines.

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The SP Group, which owns about 18.38% of Tata Sons, had sought Rs 25,000 crore through a capital reduction plan. Noel said he had placed the group's request before the board at its September 17 meeting and has now sought a detailed management assessment.

The proposed arrangement envisages Tata Sons buying out shares held by SP shareholders for a gross consideration of Rs 25,000 crore, through a selective reduction of its issued, subscribed and paid-up ordinary share capital. The payment would be made in two or more tranches over 18 months.

The buyout price would be determined at fair market value by a merchant banker or registered valuer, with the number of shares to be cancelled calculated to yield the proposed consideration.

Noel has asked management to evaluate the request, including the valuation, capital reduction scheme, timeline and key terms and conditions, and place the proposed resolution before the board for consideration and vote.

The proposal lists several possible funding sources without recourse to public borrowing. These include internal cash flows, sale of part of Tata Sons' holdings in listed companies, third-party investments in some newer businesses to free up funding commitments, and listing some of those businesses followed by an offer for sale.

The proposed capital reduction is subject to approval by Tata Sons shareholders through a special resolution, written consent from SP shareholders, sanction from the Mumbai bench of the National Company Law Tribunal and other regulatory approvals.

The letter also names Farokh Subedar, senior adviser to Sir Dorabji Tata Trust, as having worked on the proposal. Noel said Subedar would be available to discuss its details if management required his support.

In a separate letter, Noel has also sought a detailed evaluation of a restructuring proposal made by Sir Dorabji Tata Trust and Sir Ratan Tata Trust on September 28 to merge two operating subsidiaries, Tata Electronic Systems Solutions (TESS) and Tata Consulting Engineers (TCE), with Tata Sons.

The proposal, backed by the two trusts that collectively own 66% of Tata Sons, is intended to change the company's regulatory status and preserve its unlisted status by making it both an operating company and the holding company of the Tata group.

"I would like the management to make a presentation to the board with all relevant details, including legal advice received, and apprise the board on the evaluation of said proposal made by Sir Dorabji Tata Trust and Sir Ratan Tata Trust and next steps proposed," Noel wrote.

The trusts have argued that the proposed amalgamation would give Tata Sons sufficient operating revenue to fall outside the principal business criteria for a non-banking financial company (NBFC), while reducing investments in group companies as a proportion of net assets to take it outside the definition of a core investment company (CIC).

The trusts had said the resulting entity would have operating revenue of Rs 1.05 lakh crore as of March 31, 2026, against Rs 40,072 crore of income from financial assets. Operating revenue would account for 64.3% of total income, while net assets would stand at Rs 2 lakh crore, including Rs 1.77 lakh crore invested in group companies.

"The Tata Trusts believe that the proposed reorganisation and action plan for compliance would be in the best interests of the Tata Group as well as its stakeholders, in addition to being a regulatory permissible and compliant form of reorganisation of a CIC," the trusts had said in their September 28 statement.

The proposed board resolution calls for Tata Sons to seek prior no-objection from the Reserve Bank of India (RBI) under its 2025 directions on voluntary amalgamation of NBFCs. The scheme would not be filed with the National Company Law Tribunal or the central government until the regulator's clearance is received.

Once the amalgamation becomes effective, Tata Sons would apply to the RBI to surrender its registration as a core investment company and take other steps required to cease being registered as an NBFC.

The November 26 meeting follows a September 17 board meeting that exposed divisions over the reappointment of chairman N Chandrasekaran and the listing of Tata Sons. Noel opposed both, while the other directors backed the proposals.

The RBI has classified Tata Sons as an upper-layer NBFC, requiring it to list its equity shares within three years of identification under the regulator's scale-based regulatory framework. The company had sought to surrender its CIC registration, but the RBI rejected the application and asked it to comply with the upper-layer requirements.

Both proposed resolutions require management to report progress to the board and prohibit public announcements on the proposals without board approval. Neither proposal has yet been approved by the board.