Former Chairman of Tata Group, Cyrus Mistry said his stand on Tata group’s sick businesses was vindicated as losses in these “legacy hotspots” continued to mount even after a new management led by current chairman, N Chandrasekaran had taken over.
In his affidavit filed in the Supreme Court, Mistry gave details on businesses which, he claimed, had failed due to wrong business calls made by Mistry’s predecessor, Ratan Tata.
Both Tata and Mistry have appealed against the NCLAT's December order in the SC which re-instated Mistry as a director on Tata Sons board and deemed his removal as "illegal."' The apex court, however, stayed the appellate tribunal’s order on January 11 this year and said there were “basic errors" in the National Company Law Appellate Tribunal (NCLAT)’s observations while re-instating Mistry as a director on Tata Sons board.
The SC said the tribunal granted the prayers which was not even prayed for by Mistry. In May, Mistry also challenged the NCLAT order as it had reinstated him only till his tenure was to end after few months. The Mistry family, which owns 18.5 per cent, wants a permanent seat on Tata Sons board to protect the interests of minority shareholders.
The petitions will be heard by the SC from next month.
Giving the details about the performance of Tata businesses, Mistry said Tata's telecom sector investments continued to make huge losses, and the current management, for reasons best known to them, decided to sell the existing assets of Tata Teleservices, including the extremely valuable and liberalised spectrum licenses, access to an extensive fibre network, a customer-base of approximately 40 million customers for free to Bharti Airel.
‘’Worse still, whilst all of this was sold for effectively no consideration whatsoever in accruing to Tata Sons, the management of Tata Sons chose not to sell the enterprise and retail business to another potential suitor who was offering in excess of $ 1 billion,” Mistry said in his affidavit.
Very recently, the additional liabilities to the tune of Rs 14,000 crores towards AGR (adjusted gross revenues) dues have surfaced in Tata Teleservices. Thus, the value destruction to Tata Sons will be close to Rs. 60,000 crores which is in excess the anticipated figure of $ 6 Billion (approximately Rs 42,000 crores), he said.
On Tata Power, Mistry said soon after he was removed, he had raised concerns on the risk of considerable future impairments with respect to the Mundra power project, a project that Tata Power aggressively bid for during Ratan Tata’s tenure. “The capital employed at Tata Power's Mundra project was a sum of approximately Rs 18,000 crores. This venture has lost money for the last several years and continues to do so. In fact, for the financial year 2017-18, Tata Power was constrained to make a provisioning for an impairment of Rs 3,555 crores in its books which was attributable to the Mundra project.
In FY 2018-19, the losses suffered on account of the Mundra Project were approximately Rs. 1,654 crores, which, in turn, brought down the overall profitability of Tata Power," he said.
The losses sustained would have been even higher, had Tata Power, as the parent company, not transferred some of the interest expenses for the project on to its books. “Recently, the managing director of Tata Power stated that even after the tariff revision, the company would continue to lose money,” Mistry said.
Speaking on Tata Motors, Mistry said he had raised the issue of historically aggressive accounting policies for the capitalisation of product development costs that would create a future liability. The company has since changed the policies and had to take a significant loss, particularly in Jaguar Land Rover. Several emails from the management of Tata Motors reveal that the small car, Nano project, another hotspot, had lost money since its inception and in some years, the vehicles were sold below the direct cost of materials. The losses peaked at Rs 1,000 crores a year and till first quarter of FY 17, the cumulative losses were nearly Rs 6,000 crores.
“It is pertinent to note that although the Board of Tata Motors decided to shut down the plant in October 2016, and till today, to the best of my knowledge, the plant has not been shut down for emotional reasons, despite it not producing even a single Nano car,” Mistry said.
Mistry said he had also raised grave concerns on the European steel business of Tata Steel and the potential impairments facing the Tata Steel Group, only a part of which was recognised, on account of the Corus Steel acquisition during Tata’s tenure in 2007 for $12 billion.
“The acquisition of the steel assets of Corus (now Tata Steel Europe) in UK and Europe was another of the legacy decisions that had a huge backlog of invested capital earning negative returns. It is public knowledge that the plants were acquired in 2007 for nearly $ 12 billion despite additional investments over the years, the cumulative losses to date have been $1.5 billion. After I was removed, a further 1 billion pounds of investment into Port Talbot in UK was committee. Subsequently, the UK operations in 2019, declared one of their largest losses yet of 381 million pounds for the year,"he said.
“’Unfortunately, the lack of any deep restructuring and the likelihood of inadequate representations to the European regulator by Tata Sons' legal and corporate finance teams, ensured that the merger of Tata Steel Europe with ThyssenKrupp did not fructify. The merger could have been a solution to one of the legacy hotspots,” he said.