Tata Sons is capital-constrained: InGovern’s Subramanian

In an interview with Fortune India, Shriram Subramanian, founder and managing director of InGovern Research Services, the Bengaluru-based independent proxy advisory and corporate governance research firm,  explains why he believes a public listing will be more beneficial for Tata Sons, and why the RBI needs to explicitly state its stance on the company’s deregistration plea.

You have made a case for why Tata Sons should be listed. But unlike other holding companies, Tata Sons' operating entities are all listed? Any investor who wants an exposure can take a position in those listed entities. So, what purpose does a listing serve?

We are not talking from an investor perspective. In any event, there are a lot of unlisted companies, including Air India, held by Tata Sons. But the note we have prepared is from a regulatory perspective. The RBI on April 29^th has specifically clarified the issue of indirect public funds. Because listed Tata entities hold shares in Tata Sons, it effectively becomes indirect public funds. Second, in the recent list of all CICs, RBI listed Tata Sons, too, but has removed an earlier caveat that had mentioned their application for deregistration is pending. Now with that caveat gone, the RBI is, in effect, saying it [application rejected] without saying it.

So, you're saying the RBI is paving the way for its listing by removing that caveat?

Yes, exactly. But they have not explicitly said the application is rejected. The application has been pending since March 2024, which is over two years. The obligation to list, with a deadline of September 2025, has anyway lapsed over six months ago.

Given the construct of Tata Sons today with its huge loss-making ventures, including Air India, the digital ventures, and now semiconductors, do you think it can stand the scrutiny of public markets and quarterly pressures? These are long gestation projects and need to be funded.

You have a very valid point, and because these are long-gestation projects that need to be funded, is precisely why Tata Sons needs to be listed. As an unlisted entity, it cannot raise debt funding, nor can it access the equity market. Where will it get the funds from?

It will have to rely largely on internal accruals…

Which are essentially dividends, largely from Tata Consultancy Services (TCS).

or a stake sale?

That's what it has been doing. It has been selling 2–3% of TCS through block deals over the past few years, along with taking dividends. Now, TCS itself is facing headwinds because of the AI disruption narrative. So, Tata Sons itself is capital-constrained—it cannot meet its own obligations. In fact, Air India, too, will not be profitable for the next few years.

Holding companies, typically, attract a huge valuation discount…

We should leave that to the markets to decide. Whatever the valuation is, neither you nor I know. That is a separate matter. We are not commenting on valuation. This report is only about regulatory intent, which is that all CICs should be listed. If you see RBI's list of all CICs, every one of them is listed, except Tata Sons. So, effectively, the Tata Group, which always talks about compliance and governance, is the only entity that is not compliant. What is the point in keeping it in limbo? Either you reject it or you accept it.

By May 4^th, the RBI is seeking public feedback on the new asset size classification

Yes, the upper layer anyway applies. There is no escaping that. RBI's intent is very clear: it is irrespective of ownership. Why should there be an exemption for a Tata-owned CIC? Even government-owned entities are not exempted, so why should they [Tata Sons] be exempted?