Tata Sons to buy Tata Steel's Rs 3,800-cr holding in Tata Motors

Tata Sons' stake in Tata Motors will go up to around 31% after the buyout

Reducing cross-holdings among the Tata group companies has been one of the top priorities for N Chandrasekaran since he took charge as chairman on February 21. And, on this to-do list Tata Steel has been the most important entity because of its Rs 83,014-crore gross debt at the end of March, which is 2.3 times its equity.

 
On Saturday, Tata Sons said it would buy 83.6 million shares or 2.85 per cent stake in Tata Motors from Tata Steel on or after June 23. These shares of the automaker are currently valued at Rs 3,809 crore, at the current market price of Rs 455.5 a share on the BSE.
 
The group was moving in this direction prior to Chandrasekaran as well. In September 2015, Tata Steel sold 38.5 million shares of Tata Motors at Rs 324.6 to institutional investors. The same day, it sold an additional 37.9 million shares to parent Tata Sons for Rs 330 each.
 
The transaction together brought Rs 2,500 crore to Tata Steel. With today’s announcement Tata Steel will sell its complete holding in Tata Motors. Tata Motors continues to hold 0.46 per cent stake in Tata Steel, which is valued at Rs 222 crore.  “Investors have been concerned about the cross-holding in the Tata group and any move to simplify the structure will be helpful,” said Amit Tandon of Institutional Investor Advisory Services.
 
Chandrasekaran, or Chandra, as he is popularly known, in his meetings with investors following the ouster of his predecessor Cyrus Mistry got consistent feedback about the complicated group structure. Tata group companies had cross-holdings worth Rs 7,941 crore according to their market capital on Friday.
 
After Tata Steel, the highest cross-holding is by Tata Power: A 4.7 per cent stake in Tata Communications valued at Rs 988 crore.
 
Tata Chemicals has 1.56 per cent stake in Titan valued at Rs 713 crore. Tata Global Beverages has 4.39 per cent stake, valued Rs 612 crore, in Tata Chemicals. The chemicals company has a 6.84 per cent stake in the teamaker worth Rs 158 crore.
 
“Companies holding each other’s shares in the Tata group has been a legacy issue to ward off unwanted suitors,” said a management consultant who has dealt with the group for a long time. “But it does not serve well as their capital is getting deployed outside their business.”
 
Tata Sons buying out the shares from Tata Steel follows a buy-back by the crown jewel Tata Consultancy Services, after which the parent firm received Rs 10,278 crore from the software giant.
 
TCS approved a Rs 16,000-crore buy-back in February, as investors were demanding returns amid slowing growth in the sector.
 
A Bombay House insider said Chandra was likely to get over with the entire cross-holding in the next three to four quarters. “There has not been any commitment made for this to investors, but the group wants to move in this direction,” says the insider.
 
After buying Tata Steel’s stake in Tata Motors, Tata Sons would only need to buy stakes worth Rs 4,100 crore to finish the task of the remaining 27 cross-holdings in the group . “It will be a big boost to investor sentiment, if Chandra is able to unwind the cross-holding structure of the group in the very first year of his chairmanship,” said the head of a large institutional investment firm.