Tata Sons sets ball rolling for listing after RBI diktat; February 2027 emerges as approximate internal target

Tata Sons began preparing for a public listing soon after the Reserve Bank of India (RBI) directed it to do so last week, with February 2027 emerging as an approximate internal target for a likely market debut, people familiar with the matter said, setting the stage for what could possibly be one of India’s biggest and most closely watched exchange entries.

To be sure, getting an entity like Tata Sons ready for listing will take time, experts pointed out. The preliminary work began before Thursday’s dramatic developments, which saw Tata Trusts chairman Noel Tata, who opposes a listing, pitted against other Tata Sons board members, who were in favour of it.

Soon after the September 11 RBI directive, a Tata Sons team began assembling the needed financial and regulatory documentation, said the people cited.


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Capital Structure

Although investment bankers and other external advisers have yet to be appointed, they said.

February is a working target rather than a formal IPO timetable, they said. Tata Sons still needs to complete several corporate and regulatory steps before launching a public issue.

The preparations follow RBI’s decision to reject Tata Sons’ application to surrender its core investment company registration and directing it to comply with regulatory framework applicable to NBFCs in the so-called upper layer. Tata Sons has conveyed the message internally that the directive is a regulatory need and that the Tata Group holding company will abide by it, people familiar with the matter said.

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Under the RBI’s scale-based regulation framework, NBFCs classified in the upper layer are required to list on a recognised stock exchange within three years of being so identified. This stems from the need for regulatory scrutiny of systemically important financial institutions following the implosion of IL&FS in 2018.

Morphis Management Services, an IPO advisory firm, said Tata Sons would need to review its board composition and capital structure as part of the listing process. This could involve decisions on a bonus issue or share split, the treatment of existing convertible preference shares and any increase in authorised share capital.

“Preparing for an IPO is not just about filing the DRHP (draft red herring prospectus). There will need to be a comprehensive review of the company’s financials, related-party transactions and shareholder rights,” said Vimal Taparia, partner at Morphis.

Tata Sons would need to restate three years of financials plus the stub period, and make detailed disclosures on related-party transactions in the DRHP, Taparia said. Existing shareholder agreements would also need to be reviewed, with shareholders engaged early if any waivers or amendments are required.

Crossholdings

The Tata Group’s crossholdings could also draw scrutiny from public-market investors, he said.

“In a perfect world, public market investors would expect a clean look-through structure, rather than circular ownership,” Taparia added, referring to crossholdings between Tata Sons and its operating companies.

The listing process is also likely to provide a route for addressing the concerns of the Shapoorji Pallonji Group, Tata Sons’ second-largest shareholder. SP Group chairman Shapoor Mistry on Friday publicly backed the listing and said he looked forward to working constructively with Tata Sons on the way forward.

Any immediate monetisation requirement of the SP Group, however, will be handled at the Tata Sons board level, people familiar with the matter said. The issue had been discussed by the board, including a proposal for Tata Sons to provide liquidity to the SP Group against part of its stake.

Noel Tata has argued that Tata Sons should comply with the RBI’s requirements without necessarily going public and had suggested that the company work on an alternative structure. Tata Sons has not accepted that approach and is proceeding on the basis that the RBI directive has to be implemented, said people cited.

The differences have also brought into sharper focus the role of the charitable trusts as shareholders of Tata Sons. Some trustees have maintained that the trusts, given their charitable character, should not intervene in a regulatory matter concerning the commercial operations and structure of Tata Sons, said people familiar with the matter.

Legal experts said the ability of trustees to take different positions would depend on the relevant trust instrument and applicable trust law. A trustee who is also a Tata Sons director would have separate fiduciary duties in that capacity, they said.

“While the decision to pursue an IPO ultimately vests with the board of Tata Sons, it would equally be important for trustees of Tata Trusts to be aligned, given the Trusts’ controlling shareholding in the company,” said Shafaq Uraizee Sapre, managing partner-Chandhiok & Mahajan.

If shareholders oppose corporate actions needed for the listing, the resulting disagreements could complicate decision making, Sapre said. Certain resolutions, including conversion of Tata Sons from a private to a public company, may require a three-fourths majority of votes cast.

“Ultimately, the board is required to act in the best interests of the company and must comply with the law to ensure proper governance,” she said. “Shareholders retain the right to seek judicial recourse to protect their interests. However, this discord between the board and shareholders could give rise to complex issues of governance and decision-making.”

Tata Sons has received a three-month extension from the Registrar of Companies to hold its AGM after that scheduled for August 18 was deferred for want of quorum. The meeting could not be held as the Maharashtra Charity Commissioner did not lift restrictions on Sir Ratan Tata Trust (SRTT), one of the two trusts that together own a majority stake in Tata Sons, to hold meetings or make decisions. As a result, a jointly appointed nominee by SRTT and Sir Dorabji Tata Trust could not take part, resulting in the lack of quorum.