Tata Sons listing, leadership transition may reshape group's long-term financial strategy: S&P

New Delhi: A potential listing of Tata Sons and a leadership transition at Tata group are unlikely to have an immediate impact on the credit ratings of group companies, but could reshape the assessment of group support and financial policy over the longer term, S&P Global Ratings said on Tuesday.

S&P said any changes to the group's financial policies were likely to be gradual, citing Tata's long history and conservative management approach.

"A potential listing of holding company Tata Sons and leadership transition at the group would therefore have no immediate impact on our ratings on group entities," S&P said in a report that does not constitute a rating action.


Also read: Tata Trusts pitch Tata Sons restructuring as alternative to listing

The ratings agency said it views the rated Tata companies as being run by independent professional management teams, although Tata Sons influences their strategy.

S&P currently rates Tata Steel Ltd, Tata Motors Ltd, Tata Motors Passenger Vehicles Ltd, Tata Power Co Ltd, Tata Power Renewable Energy Ltd, Tata Capital Ltd and Jaguar Land Rover Automotive PLC. It considers all of them strategically important to Tata Sons, resulting in up to three notches of group support.

However, a change in leadership, group structure or stakeholder priorities could raise questions about the continuity of Tata's strategy and financial policy, as well as the likelihood of group support over the longer term, S&P said.

The issue could be particularly relevant for companies including Tata Steel, Tata Power and Tata Capital, which have significant growth plans, while Jaguar Land Rover is undergoing a business transition.

Tata Sons, the holding company of the salt-to-software, -cars, and -airline Tata group, has been under pressure to list after the Reserve Bank of India (RBI) rejected its request to deregister as an upper-layer non-banking financial company.

The company's board has moved to comply with the listing requirement, while Tata Trusts, which owns about 66 per cent of Tata Sons, has opposed the move. The listing could bring greater public scrutiny of the holding company's capital allocation, investments and support for group businesses.

The listing dispute has coincided with a boardroom tussle over leadership. Tata Sons' board voted on September 17 to reappoint N. Chandrasekaran as chairman for a third five-year term after he had earlier indicated he would step down when his current tenure ends in February 2027. Tata Trusts Chairman Noel Tata opposed the reappointment and has challenged its validity, exposing a broader disagreement between the Trusts and the Tata Sons board over governance, control and the group's future direction.

S&P said the credit profiles of Tata's rated companies had improved in recent years, partly benefiting from the group's relatively conservative financial policy.

The Reserve Bank of India on August 6 kept unchanged Tata Sons' obligation to list, S&P said. A routine listing of Tata Sons in its current form would be neutral for the credit profiles of Tata group companies, it added.

However, bringing public shareholders into Tata Sons could increase scrutiny of investment decisions, capital allocation and support for weaker group companies, potentially placing greater emphasis on financial returns, capital discipline, shareholder distributions, leverage and accountability for strategic investments.

S&P pointed to Tata Sons' previous support for Tata Teleservices Ltd. as an example of the group's willingness to provide financial backing even when the economic benefits were not apparent.

The impact of a listing is likely to emerge gradually, however, given the size of a potential Tata Sons initial public offering and the time it would take for public shareholders to become a significant part of the ownership structure.

S&P's current assessment of Tata group support is based on Tata Sons being a single, key controlling entity whose strength comes from its ownership of a diversified portfolio of companies.

The agency said it assesses Tata Sons' credit quality as 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 said.