Tata Sons IPO could undermine group’s core role, says former Tata Trusts trustee NA Soonawala

Amid regulatory pressure for a stock market listing, former Tata Sons vice chairman NA Soonawala has argued that an IPO of the company would "undermine the company's special role in the group."

In an article published in The Times of India on Thursday, Soonawala wrote that "the implications of listing go beyond regulatory compliance and strike at the heart of Tata's role in the group. Historically, Tata Sons has not merely been a holding company but a promoter and custodian of group values."

Soonawala cited several examples to argue that the Tata Group has "consistently complied with all regulatory directives issued by RBI, adapting its structure whenever required" in the article titled "Why Tata Sons should not be listed".

Soonawala wrote that when access to bank funding was restricted, Tata Sons moved away from bank borrowings and relied only on permitted non-banking sources.

Later, to maintain a near debt-free balance sheet and avoid mandatory listing, the company repaid nearly ₹20,000 crore through internal accruals and redeemed preference shares ahead of schedule.

Similarly, after tighter CIC regulations barred investments outside group entities, Tata Sons exited its relatively small non-Tata group holdings. According to him, these measures reflected the company's disciplined approach to regulatory compliance while preserving its identity as a private holding company, the former Tata Sons veteran wrote.

Discussing the implications of Tata Sons becoming a publicly listed company, Soonawala wrote, "A publicly listed Tata Sons would inevitably be accountable to institutional and foreign shareholders, whose primary focus would be financial returns. It is doubtful whether such investors would accept substantial deployment of capital to support or rescue group companies in distress. This tension could fundamentally alter Tata Sons' traditional role and weaken the group's internal support system."

Addressing the liquidity argument, Soonawala wrote, "The argument that listing would improve liquidity for minority shareholders is also limited. Most such shareholders - primarily Tata Group companies - have not advocated listing and have, in fact, benefited significantly from dividends and capital appreciation. The principal demand for liquidity comes from Shapoorji Pallonji Group, whose position is understandable but cannot alone justify a decision with such far-reaching consequences."

What is the structure of the Tata Group?

The 108-year-old salt-to-steel conglomerate has a unique ownership structure, under which a group of philanthropic organisations collectively known as the Tata Trusts holds around 66% stake in Tata Sons. Debt-laden construction and infrastructure conglomerate Shapoorji Pallonji Group owns 18.4% in the company.

The Tata Trusts comprise 13 entities, seven of which directly hold shares in Tata Sons. The board of Tata Trusts includes six trustees drawn from these entities.

Noel Tata, a member of the founding family, currently serves as chairman of Tata Trusts and is also a director on the Tata Sons board.

(With inputs from Reuters)