Mistry group seeks to raise up to $1 billion pledging Tata Sons stake

Mistry, whose son Cyrus was ousted as chairman of Tata Sons in 2016, is the biggest single shareholder in India's largest conglomerate.

The Shapoorji Pallonji Group, controlled by billionaire Pallonji Mistry and his family, is in preliminary discussions to borrow as much as $1 billion to repay maturing debt using part of its stake in Tata Sons as collateral, said people with knowledge of the matter.

Mistry, whose son Cyrus was ousted as chairman of Tata Sons in 2016, is the biggest single shareholder in India's largest conglomerate, and is seeking a loan as the coronavirus outbreak delays a plan to sell assets, the people said, asking not to be identified.

Mistry is trying to use his 18 per cent stake in Tata Sons, which is estimated to be worth as much as $14 billion, as the Covid-19 pandemic stalls economic activity across the world. However, he may face a hurdle: the shares in the unlisted Tata holding company are closely held and illiquid. A legal battle between Tata Sons and Cyrus Mistry following his ouster may also deter potential creditors.

A representative for Shapoorji Pallonji Group declined to comment.

Mistry's Shapoorji Pallonji & Co had Rs 9020 crore ($1.2 billion) of debt as of September 30, according to rating assessor ICRA. The company planned asset sales, including solar power plants and road assets, in a bid to reduce debt by as much as Rs 4,000 crore, a person with direct knowledge of the matter said in August.

Founded in 1865, the Shapoorji Pallonji group, which has built some of Mumbai's landmarks, including the RBI building, is still better placed than most of its corporate peers, with total revenue of $7 billion for the year ended March 2019.

Tatas plan to move SC vacation bench for early stay against NCLAT order

The government too is getting active on the latest development in Corporate India.

Tata Sons, the holding company of the salt-to-software conglomerate, is looking at approaching the vacation Bench of the Supreme Court for a stay against the National Company Law Appellate Tribunal (NCLAT) order to reverse the status of the company from private to public limited and reinstating Cyrus Mistry as a director on its board and on three group firms, a person close to the matter told Business Standard.

The NCLAT order on conversion of the company back to public limited and Mistry’s reinstatement as director on some boards was with immediate effect. Keen to get an early stay, the $110-billion Tata group may not like to wait till January 6, 2020, when the country’s top court reopens after the winter break. Tribunals such as the NCLAT have power to punish for contempt under Section 425 of the Companies Act 2013. However, for restoring Mistry as executive chairman of Tata Sons, the Tribunal has granted a four-week window.

The government too is getting active on the latest development in Corporate India. The Ministry of Corporate Affairs (MCA) will examine whether the procedures were followed by Tata Sons and the Mumbai Registrar of Companies (RoC) before the conversion of the company’s status from public to private limited under the leadership of N Chandrasekaran, a senior government official said.

“Implementation has to be after examination. The RoC is simply a registry with no decision making powers…We are going through the order and if we find any facts have been missed out in the order, we will place them before the Tribunal,” another official pointed out.

In theory, the RoC can make the change, after following certain procedures. But, lawyers argued that a reversal in the status of the company would be tough. In September 2017, Tata Sons had secured shareholders’ approval for conversion to a private limited company. At that time, such a conversion, under Section 14 of the Company Law, required approval of the Tribunal before approaching the RoC. The law was changed with effect from November 2, 2018, delegating the powers to the Central government. “The regional director office under MCA can now give this approval instead of the Tribunal,” one of the officials quoted above said.

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Ratan Tata's legacy threatened as tribunal overturns Cyrus Mistry's ouster

The NCLAT ruling leaves the Tata group rudderless as it faces a string of urgent decisions.

For more than 150 years, the Tata Group has been synonymous with India’s nation-building project, venturing into everything from autos to airlines when its country needed them. And no executive better personified the country’s emergence on the world stage than Ratan Tata, whose string of dazzling takeovers took a largely domestic firm global.

Now at 81, Tata’s legacy is under threat. An internecine war over the conglomerate’s future took a crippling turn Wednesday, highlighting that even the famed Tatas aren’t immune to the corporate governance troubles that often plague the family businesses that still dominate India’s economy.

In a surprise ruling, an appeals court said Tata’s erstwhile successor, Cyrus Mistry, was improperly ousted as chairman of the group’s holding company three years ago, paving the way for his reinstatement. In a further blow to the elderly tycoon, the court found the group’s move to take the holding company private after Mistry’s removal was unlawful and must be reversed.

ALSO READ: Tata vs Mistry: What next in India's biggest corporate thriller

The Tata group can appeal the ruling to India’s Supreme Court. But the turmoil couldn’t have hit at a worse time for a $110 billion conglomerate whose products range from salt to software.

It comes just as the group contends with a crisis at its British unit, Jaguar Land Rover Automotive Plc—one of the crown jewels of Ratan Tata’s buying spree—and a crushing economic slowdown at home that’s dampened demand for wares from steel to Tetley teas.

“It is a battle for honor and prestige,” said Shriram Subramanian, founder of proxy advisory firm InGovern Research Services Pvt. Ltd. “This ruling is a vindication of the position taken by Cyrus Mistry that his removal was illegal.”

Business Standard