Tata Sons' Listing Unfavourable For Tata Trusts, Sources Say

Tata Trusts, which holds a controlling 66% stake in Tata Sons Pvt., is generally unfavorable towards listing of shares on the stock market, according to sources.

The philantrophic body derives significant CSR funding for their charitable activities from the dividends of Tata Sons and seek to maintain their traditional governance structure.

A listing is seen as a move that would dilute the Trusts' control over Tata Sons, which currently includes appointing a number of board nominees and having power over key strategic decisions through its majority ownership, sources told NDTV Profit.

The potential Tata Sons IPO has turned into a contentious debate driven by conflicting interests of its major shareholders, Tata Trusts and the Shapoorji Pallonji (SP) Group, and a regulatory mandate from the Reserve Bank of India.

The RBI had classified Tata Sons as an 'Upper-Layer' Non-Banking Financial Company, which mandated a public listing by September this year. Tata Sons had sought to de-register as a Core Investment Company (CIC) to avoid the mandatory listing, a decision on which is still pending with the RBI.

All eyes are on the RBI's final decision on whether the listing is mandatory to comply with the regulations, especially after Tata Capital Ltd.'s listing. Despite the shadow bank's listing, if the regulator mandates Tata Sons go public, Tata Trusts may have to comply and give their view through it's two nominees on the board of Tata Sons, a source shared.

Tata Trusts is concerned that going public would subject the company to stricter governance rules, expose it to takeover risks, and potentially erode their veto rights, especially with "majority of minority" voting provisions possibly giving the minority SP Group greater influence.

The SP Group, the largest minority shareholder with an approximately 18.4% stake, is pushing for the listing of Tata Sons. The primary driver for the SP Group is financial: an exit from its Tata Sons stake is critical for liquidity to address its substantial debt burden. The group argues that the listing is a "moral and social imperative" that would bring greater transparency and accountability to the holding company and unlock immense value for all shareholders, including the ultimate beneficiaries of Tata Trusts.

Furthermore, there is an inherent conflict of interest if the Trustees, whose primary objective is philanthropic, were to support a listing that could prioritize commercial goals and potentially alter the group's long-term structure and stability, sources said.