Noel Tata tables proposal for providing liquidity to SP Group

Tata Trusts Chairman Noel N. Tata, at the board meeting of Tata Sons on Thursday, tabled a proposal from Shapoorji Pallonji (SP) Group to provide it with at least ₹25,000 crore by buying back a portion of its stake in the holding company.

SP Group proposes phased monetisation

The proposal involves the sale of Tata Sons shares held by Sterling Investments Corporation Private Limited (SICPL) and Cyrus Investments Private Limited (CIPL), the two investment entities through which the SP Group holds its stake.

"The transaction envisages a sale of such number of Tata Sons shares held by SICPL and CIPL as would, at a minimum valuation, as determined in accordance with Rule 11UA of the Income Tax Rules 1962, yield a gross consideration of ₹25,000 crore," Tata Trusts said in a release.

The structure proposed by the SP Group would see the buyout executed in two tranches over 18 months. Tata Sons would also initiate a selective capital reduction process through the National Company Law Tribunal (NCLT), while valuation of the shares would be based on the fair-value methodology under the Income Tax Rules.

The proposal follows discussions between Noel Tata, Tata Sons chairman N. Chandrasekaran and SP Group chairman Shapoor Mistry. The SP Group holds about 18.37% of Tata Sons and has been exploring ways to monetise part of the holding.

Noel Tata suggests examining funding options

The proposed ₹25,000-crore transaction would require Tata Sons to identify the sources of funding. Noel Tata has suggested that the company consider a combination of internal cash generation, sale of listed investments, bringing investors into newer businesses and potential offers for sale of some businesses.

"He requested the Board to take the necessary steps for initiating the NCLT process and authorise the operating team of Tata Sons and the Tata Trusts to continue discussions with the SP Group, and the bankers, and report to the Board," the release from Tata Trusts said.

For the SP Group, the proposal could unlock cash from a long-held, largely illiquid investment. For Tata Sons, it would provide a route to address the SP Group’s liquidity requirement without necessarily requiring an external buyer for the stake.

"This is in continuation and reaffirmation of the Tata Trusts’ desire to offer a fair and equitable solution to the SP Group in respect of their holdings in Tata Sons," Tata Trusts said in the release. 

Any buyback, however, remains a proposal at this stage. The valuation, funding arrangements and NCLT process will need to be worked through before the transaction can be completed.