Noel Tata presents SP Group's Rs 25,000-cr Tata Sons stake sale proposal as RBI pushes listing

• SP Group offers to sell up to 3% of Tata Sons for Rs 25,000 crore.

• Proposal comes as RBI pushes Tata Sons towards a public listing.

• SP Group, which holds 18.38%, faces Rs 3,500 crore debt repayment by September-end.

Shapoorji Pallonji (SP) Group has offered to sell up to 3 per cent of its stake in Tata Sons back to the holding company for Rs 25,000 crore, presenting an alternative to a potential public listing of Tata Sons, according to an executive familiar with the matter.

Tata Trusts chair Noel Tata presented the proposal to the Tata Sons board on Thursday, the executive said. The offer values Tata Sons at about Rs 8.3 trillion and comes days after the Reserve Bank of India (RBI) ordered the company to take immediate action towards a public listing.

SP Group, which owns 18.38 per cent of Tata Sons and is its largest minority investor, has long sought an exit from the company. Its entire stake is pledged to creditors as the debt-heavy infrastructure and construction group faces repayment obligations of Rs 3,500 crore by the end of September.

Offer and valuation

SP Group made the proposal in a letter sent last week to Farokh Subedar, a close aide to Noel Tata, according to the executive. Subedar, Tata Sons group chief strategy officer Ankur Verma and a senior SP Group representative are members of a three-person panel set up to resolve issues between Tata Sons, Tata Trusts and SP Group.

The panel is believed to have met at least twice over the past 15 months but has made little progress.

Under the proposal, SP Group has sought Rs 25,000 crore for 2-3 per cent of Tata Sons' shares and expects to receive the money over the next 18 months, the executive said.

Tata Group has not conducted an independent valuation exercise for Tata Sons, which holds stakes in 26 listed companies and operates privately held businesses.

The executive said SP Group's proposal remained relevant despite having been made before the RBI's order on 11 September. According to the executive, a public listing could value Tata Sons at 30-35 per cent below the combined value of its businesses because of a holding company discount.

A holding company discount refers to a situation where the market values a parent company at less than the combined value of its holdings.

"Any planned IPO is an uncertain, complex and slow process. Also, we don't know how the value is decided or if there is a discount when Tata Sons goes public. So, you could say that SP Group's offer might be good for them since they need money in the next 18 months," the executive said.

Emails sent to SP Group and Tata Trusts seeking comment went unanswered.

Tata Sons' ability to fund deal

The proposal also raises questions about whether Tata Sons has the funds to pay Rs 25,000 crore for the stake.

The executive said Tata Sons receives about Rs 30,000 crore annually through dividends, share buybacks and proceeds from companies that go public, and therefore would not face difficulty funding the proposed transaction.

The proposal comes as Noel Tata, who became chair of Tata Trusts on 11 October 2024, faces the challenge of helping SP Group find a way to exit its investment in Tata Sons.

Across SP Group's promoter and operating entities, its total debt is estimated at around Rs 60,000 crore, according to multiple media reports. Some Tata Group executives believe the RBI's direction for Tata Sons to take "immediate" action may reflect concerns about potential systemic risks if the group were to default on its debt.

Long-running Tata-SP dispute

SP Group's ability to monetise its stake has been complicated by Tata Sons' conversion into a private limited company after Cyrus Mistry was removed as chairman in 2016. The structure, in which Tata Trusts has wide-ranging powers, allows the board to restrict share transfers.

The Shapoorji Pallonji Group first became a shareholder in Tata Sons in 1965 under patriarch Shapoorji Pallonji Mistry. It continued acquiring shares over the following three decades, eventually building an 18.38 per cent stake.

Relations between the two groups deteriorated after Cyrus Mistry, the younger son of Pallonji Mistry, was removed as Tata Sons chairman by Ratan Tata in October 2016. The move led to a prolonged legal dispute over what SP Group alleged was wrongful termination. The Supreme Court ruled in March 2021 that Cyrus Mistry's removal was lawful.

Shapoorji Pallonji died in 2022, while Cyrus Mistry died in a road accident a few months later.

Shapoor Mistry, Cyrus Mistry's elder brother, now oversees SP Group. Noel Tata's wife, Aloo Mistry, is Shapoor Mistry's sister.