Tata Sons shake-up could hit Tata Group credit ratings, S&P warns

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 may impact the outlook of the group's credit quality, and thereby, individual ratings, rating agency S&P said on Tuesday.

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

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"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," S&P Global Ratings said. "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."

Tata Sons, holding company for the $185 billion steel-to-aviation group, and its controlling shareholder Tata Trusts have been at loggerheads after a 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 recently voted by a majority to reappoint N Chandrasekaran as chairman for another five years and embark on the process of listing the holding company. Noel Tata had opposed both moves.

S&P said though a potential listing of Tata Sons and leadership transition at the group won't have immediate impact on credit ratings of 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 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.

According to the rating agency, Tata Sons going public could impact assessment of group support should the addition of public shareholders further increase scrutiny of investment decisions, capital allocation, and support for weaker group entities. "This may result in greater emphasis on financial returns, capital discipline, shareholder distributions, leverage, and accountability for the performance of strategic investments," it said.