Tata Sons' listing, leadership transition could reshape group credit: S&P

S&P Global Ratings in a statement on Tuesday mentioned that any leadership transition or changes in the Tata group’s 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,” the rating agency said in the statement.

A routine listing of Tata Sons in its current form should be neutral for Tata group companies. However, the agency said if Tata Sons were to go public, it could have implications on the rating agency’s assessment of group support as the introduction of public shareholders could 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. As an example, previous cases of Tata Sons' support to Tata Teleservices reflected the group's willingness to pay even though the economic benefits were not apparent,” the rating agency pointed out.

“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. 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,” the agency said.

The India-based group has a long history and conservative management approach. We view the rated entities as run by independent professional, management teams, although Tata Sons does influence their strategy.

The rating agency currently rates Tata Steel, Tata Motors, Tata Motors Passenger Vehicles, Tata Power Co, Tata Power Renewable Energy, Tata Capital and Jaguar Land Rover Automotive with ratings between BBB stable and BBB negative. “We view all entities to be strategically important to Tata Sons, resulting in up to three notches of support,” the agency said in the statement.