Tata Sons to sell 1.5% stake in TCS through block deals to strengthen its balance sheet

As of 10.30 am today, a whopping 3,23,52,039 shares of Tata Consultancy Services Ltd (TCS) got traded in bulk deals on the National Stock Exchange (NSE) as well as the Bombay Stock Exchange (BSE). This includes two trades of 9.04 million shares and 7.5 million shares at 9.15 am that are the largest in at least a decade, if not more. In the bargain, the share price of the fastest growing IT services brand in the world - according to leading brand valuation firm, Brand Finance - cracked over 5% in the morning trade. TCS is currently trading flat at around Rs 2,898 apiece while the Sensex is up 0.18% at around 33,980.

This follows media reports of Tata Sons planning to sell a 1.5% stake in TCS, worth nearly $1.3 billion (Rs 8,500 crore), through block deals. Citigroup and Morgan Stanley are managing the TCS share sale, touted to be the biggest block trade this year at over 28 million shares. As per the deal term sheet, Tata Sons, which owned 73.5 percent of TCS as of end-December, would sell the shares in a price range of Rs 2,872 rupees to Rs 2,925 rupees apiece. That's a discount of 4-6% on TCS' Monday closing price of Rs 3,052 on the BSE.

For the uninitiated, a "bulk deal" is a trade where a single investor buys/sells more than 0.5% of a company's total equity shares, either through single or multiple transactions. On the other hand, a "block deal" is a transaction of over 500,000 shares - or a minimum value of Rs 5 crore - executed through a single transaction. According to Motilal Oswal, these trades are done on a special window that opens for 35 minutes in the morning trading hours. The orders in a block deal are not shown to people who trade from normal trade window.

According to The Economic Times, experts say that the proceeds of this sale may be used to deleverage the balance sheet of Tata Sons. The latter had to shell out $1.2 billion to NTT DoCoMo last year in order to settle the long-standing dispute with the Japanese telecom giant after it exited their joint venture in 2013.

Then there is the debt of over Rs 40,000 crore owed by Tata Teleservices, even as the sale of the consumer wireless unit to Bharti Airtel awaits regulatory approvals. In 2017, Tatas had announced that Tata Teleservices will merge with Bharti Airtel on a no-debt, no-cash basis.  The proceeds from the TCS sale might be used to clear some of this debt.

Incidentally, just last week Bloomberg had reported that Tata Sons is seeking an offshore syndicated loan to repay debt of units Tata Teleservices and Tata Teleservices Maharashtra. The $1.5 billion six-year loan is set to be the first offshore syndicated facility taken out by Tata Sons since 2007. The Group is clearly in a hurry to exit its troubled mobile telephony business.

Other industry experts point out that Tata Sons may choose to use the TCS stake sale proceeds to fund Tata Steel, which is hoping to snap up Bhushan Steel and Bhushan Steel and Power. Tata Steel is reportedly the highest bidder for both bankrupt companies with a total debt of Rs 60,000 crore.

After this block deal, Tata Sons will hold about 73% in TCS, which generated $18 billion in revenues in fiscal 2017. TCS is the most-profitable unit within the $100 billion-plus Tata Group, and ranks among the top three most valuable brands in the global IT services sector along with IBM and Accenture.

With Reuters inputs