Some corporate developments are the result more of regulatory pressures than enlightened internal thinking. A case in point is the Reserve Bank of India’s (RBI’s) decision last week (11 September) to reiterate its view that Tata Sons, the most important Tata group holding company, is an upper layer non-bank financial company. Thus, it would have to list itself on the stock exchanges.
While the Tata Trusts, which hold two-thirds (66 percent) of the shares in Tata Sons, have been reluctant to list the company, other minority shareholders like the Shapoorji Pallonji Mistry (SP) group are keen on it, since this is the only way for the group to unlock value from its 18.4 percent holdings in Tata Sons. The fact that some companies in the SP group have been facing serious debt repayment problems has added a degree of urgency to the need to leverage their Tata Sons holdings.
While the RBI has filed a caveat in the Bombay High Court to ensure that it is heard before Tata Sons is given any kind of reprieve, the Tatas would be well-advised to actually start the process of listing since it is in their own broader interest. While holding companies have no general need to list, especially if they are closely-held by promoters, in Tata Sons’ case, its majority shareholding is with trusts who use the cash generated to do charity work. This makes Tata Sons more than just a holding entity as the promoter entities (the Tata Trusts themselves) would benefit as much from closer market scrutiny as the minority public shareholders. Charities cannot really decide how companies should be run, and some market scrutiny of Tata Sons’ capital allocation policies would help.
Tata Sons was a low-profile group holding company till the 1990s, with small shareholdings in group companies. When Ratan Tata took over as head of Tata Sons, he used the high cash generated by Tata Consultancy Services (TCS) to raise its holdings in other group companies to ward off potential corporate raiders. Other group companies were also asked to invest in Tata Sons’ share capital in order to aid this process, which is why 12.9 percent of Tata Sons shares are held by them. At today’s Tata Sons estimated valuation of around Rs 12.5 lakh crore, this is Rs 1.6 lakh crore of idle investment for those companies, when the same could be used to grow their own businesses or retire debt.
Let’s see why a listing would benefit all, starting with the Tata Trusts themselves.
First, the Tata Trusts need a steady flow of dividends from Tata Sons, which, in turn, needs the shares it owns in group companies to perform well. When Tata Sons performs well, the trusts cannot only maintain their charitable activities, but also expand them. But corporate performance can vary, and they also sometimes need more capital to grow. Maintaining a balance between the need to pay dividends to the trusts implies that Tata Sons has to have a sensible capital allocation formula for group investments which can then generate good dividends or capital appreciation over the long term. Logically, the trusts benefit most if Tata Sons makes sensible commercial decisions on its investments. Public investor scrutiny of how Tata Sons invests its cash will be helpful in this regard.
For example, if Tata Sons had been listed a few years ago, its shares would have been impacted – possibly negatively – when the group decided to invest in Air India, which is now stuck in huge losses, not least because of the air crash last June in Ahmedabad. Tata Sons, through a subsidiary, owns 74 percent of Air India, and it may have to invest a further Rs 10,000 crore to keep it operational this year and beyond. Public scrutiny would not necessarily have prevented the Tatas from buying Air India from the government, but would have come with stronger demands for return on investments – which could have benefited the trusts too. Today, Noel Tata has demanded better management of Tata Sons’ investments (which includes Air India and Big Basket, among others), causing the exit of N Chandrasekaran as Tata Sons chairman. Closer investor scrutiny through a listing would have forced an earlier review of Tata Sons investments.
Second, the next big shareholder, the SP Mistry group, will obviously benefit from a listing as it would enable the group to sell or pledge shares to raise funds for its own businesses. The group is steeped in debt, and, according to a Moneycontrol.com report, in this month alone it has to pay back Rs 3,500 crore.
When the Tata group was relatively small and with lower capital needs, the Tatas and the Mistrys were happy to work together to let Tata sons do what it needed to. But now that they have fallen out, the SP group’s 18.4 percent holdings in Tata Sons represents a cash cow that can’t be easily milked. There is now no case for keeping Tata Sons private when it cannot allow a minority shareholder to exit. The SP Group is sitting on Rs 2.3 lakh crore of Tata Sons shares that it cannot easily monetise without a listing.
Third, a listing would benefit Tata companies the most, including TCS itself. In the past, it helped that TCS dividends were a huge contributor to Tata Sons’ cash flows. But now, when TCS needs to reinvent itself and invest to grow in an era when artificial intelligence has damaged the old labour arbitrage business model, reliance on one cash cow is no longer sensible. In 2025-26, TCS cut dividend payments to Tata Sons by 12 percent, from Rs 32,184 crore in the previous year to Rs 28,291 crore.
The same goes for other group companies that together hold Rs 1.6 lakh crore of investment that they cannot use themselves.
The only downside of a listing, from the Tata point of view, would be that the capital allocation and dividend payment decisions of Tata Sons will now be subject to deeper market scrutiny. But this will benefit the Tata trusts themselves over the medium term as big investments will need to be justified to the markets – failing which investors will dump shares.
Tata Sons should not contest the RBI’s decision asking it to list since there are benefits for all stakeholders. Far from it, the board should welcome this as it would aid transparency and help it make better capital allocation decisions.
In any case, market regulator Sebi allows companies with large potential market valuations to list with as low an offering as 2.5 percent. The company should allow the SP Group to make an initial offering of this amount, which will enable the market to price the holdings of Tata Sons based on market disclosures.
The RBI has pushed Tata Sons in the right direction for its own good.
R Jagannathan is an editor and the former editorial director at Swarajya magazine. He tweets @TheJaggi. Views are personal.
This article has been republished from the author’s personal blog. Read the original article here.
Tata Sons is monumentally important in economic terms. More transparency, higher standards of regulatory compliance would be good for the Group itself. 2. An almost one fifth share of the SP group too deserves to be dealt with with utmost fairness.