Tata Sons is planning to reduce cross-holdings in two group companies — Tata Chemicals and Tata Power — which the group holding company will buy, consolidating its stake.
Besides the unlisted Tata Teleservices, the equity value of the two companies’ listed investments is around Rs 5,500 crore.
This sale of investments to parent Tata Sons will help both companies raise funds to repay their debt and finance capital expenditure.
Tata Sons had raised Rs 3,300 crore by private placement of debentures, which closed on August 21.
The market value of Tata Sons’ listed investments was Rs 4,53,892 crore as on March this year, which is a huge advantage in raising debt from the markets, according to a banker who has reviewed Tata Sons' prospectus for the debenture issue.
Bankers said the funds would come as a big help to both companies as Tata Power was facing problems with its Gujarat plant selling electricity at a lower price than its cost and has offered to sell a 51 per cent of stake for Rs 1 to the state so as to reduce its liability.
Tata Power also holds a stake in Tata Communications along with associate company Panatone Finvest, where it holds 40 per cent, and also has a minority stake in unlisted Tata Teleservices. The combined book value of these investments was Rs 2,000 crore and including the market value of listed companies is around Rs 3,100 crore.
The company has net debt of Rs 46,800 crore in March this year. Analysts said Tata Power’s net debt to EBITDA (earnings before interest, tax, depreciation and amortisation) remained high at eight times in financial year 2026-17, and any unlocking of value in equity investments would come as a big help.
Though Tata Power has shown consistent improvement in free cash generation, and its return on equity has been improving, it is still at the mid-single digit level.
Tata Chemicals, on the other hand, is changing its strategy and is investing more in its consumer businesses and exiting loss-making businesses. The funds would be used for further investments in consumer-centric businesses such as pulses, and expanding into neutraceuticals and related businesses, targeting a sales split of 50 per cent from branded and non-commodity businesses from 22 per cent in 2014-15.
The company also raised Rs 2,700 crore by selling its urea fertiliser business to Norway’s Yara in August last year.
Tata Chemicals’ stake in Rallis India amounts to nearly Rs 2,200 crore, and also holds nearly Rs 900 crore of stake in Tata Global and Titan each.
Tata Power and Tata Chemicals also hold a stake in unlisted Tata Teleservices, and the Tatas are scouting for a partner for this business for quite some time.
Apart from buying back stake, Tata Sons will have to put funds into Tata Teleservices so that it can repay its debt and improve its financial metrics. This follows Tata Sons’ investment of Rs 2,000 crore into Tata Teleservices in financial year 2016-17. The investment by Tata Sons was important as Tata Tele’s net worth eroded by Rs 11,650 crore in the fiscal ending March this year – highest in the Indian telecom sector -- as rising finance costs corroded its profits.