- Noel Tata has proposed restructuring Tata Sons to change its RBI regulatory classification
- He suggests merging two subsidiaries into Tata Sons to end NBFC and core investment status
- A Rs 25,000 crore capital reduction is proposed to facilitate Shapoorji Pallonji Group's exit
Noel Tata has written to the Tata Sons board seeking consideration of two significant proposals: a restructuring of the holding company to address its regulatory classification under Reserve Bank of India rules, and a Rs.25,000 crore capital reduction to facilitate an exit for the Shapoorji Pallonji Group.
In two 3-page letters dated Oct. 29, Tata has asked that both matters be placed on the agenda of the Nov 26 board meeting, and has said he will be making presentations on both. The proposals include draft resolutions for directors to deliberate and vote on. Neither has been approved by the board.
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The first letter concerns an RBI communication dated Sept. 11 and a restructuring proposal submitted by Sir Dorabji Tata Trust and Sir Ratan Tata Trust on September 28. The proposed reorganisation seeks to enable Tata Sons to cease qualifying as a non-banking financial company and a core investment company.
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The proposed route involves merging two wholly owned subsidiaries, Tata Electronic Systems Solutions and Tata Consulting Engineers, into Tata Sons. The rationale is to give the holding company operating businesses alongside its role as the group's investment vehicle, potentially changing its regulatory classification.
The merger would be undertaken under Sections 230-232 or Section 233 of the Companies Act, depending on legal advice. Since both entities are wholly owned subsidiaries, no fresh shares would be issued and Tata Sons' existing shareholding structure would remain unchanged.
The draft resolution proposes seeking prior RBI clearance before approaching the National Company Law Tribunal or the Central Government for approval. Tata Sons would subsequently seek to surrender its core investment company registration and take steps to exit its NBFC classification. The proposal remains subject to regulatory and statutory approvals.
The second letter addresses the SP Group's request for Rs.25,000 crore in funding. Tata has sought a detailed management presentation covering valuation, the proposed capital reduction, payment timelines and other conditions.
The draft resolution proposes selectively reducing Tata Sons' share capital by cancelling ordinary shares held by SP Group shareholders. The shares would be valued at fair market price by a merchant banker or registered valuer, with the number cancelled calibrated to deliver Rs.25,000 crore. Payment is proposed in two or more tranches over 18 months.
The buyout would require shareholder approval through a special resolution, lender consent for release of pledged shares and NCLT sanction. Definitive agreements would also provide for a full and final settlement of claims by SP shareholders against Tata Sons, its directors and shareholders.
Significantly, the proposed funding plan rules out fresh borrowings and access to public funds. Instead, it identifies internal cash flows, sales of listed-company stakes, third-party investments in newer businesses and initial public offerings through offers for sale as potential sources.
The proposals could have significant implications for Tata Sons' regulatory structure, capital allocation and the long-running financial relationship with the SP Group. For now, both remain proposals awaiting board consideration.
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