Noel Tata's new role may end feud with Shapoorji Pallonji Group; here's how

The appointment of Noel Tata as the new chairman of Tata Trusts could reduce the longstanding tensions between Tata Sons and the Shapoorji Pallonji Group. The development might also open the door for the latter to explore a partial monetisation of its 18.4 per cent stake in Tata Sons, provided mutually agreeable terms can be reached.

However, according to a report in The Economic Times, any such move may not happen immediately, as Noel Tata has only just assumed the chairmanship following the passing of industrialist Ratan Tata.

'Reduced hostility to benefit both parties'

“The Tatas and the Mistrys (of Shapoorji Pallonji Group) have maintained a shareholder relationship since 1965, with the dispute arising only over the last nine years,” said a source quoted in the report. Noel Tata’s appointment increases the likelihood of renewed dialogue between the two groups, particularly as his wife, Aloo, is the sister of the late Cyrus Mistry, who was removed as chairman of Tata Sons in 2016, sparking the deterioration of relations. 

The source further added, “Although everything may not be perfectly smooth, the reduced hostility could benefit both parties as shareholders, facilitating better communication.”

Debt reduction and asset monetisation

The Shapoorji Pallonji Group has been working to reduce its consolidated debt, bringing it down from Rs 32,500 crore in March 2021 to Rs 20,564 crore in March 2023, according to Infomerics Ratings. However, the group still faces significant debt due to increased borrowing at the promoter level to refinance loans taken by its subsidiaries.

Over the past two-to-three years, the group has successfully monetised assets such as Eureka Forbes, Sterling & Wilson Renewable Energy, and SP Jammu Udhampur Highway. Further asset divestments are planned to reduce the group’s overall debt burden. An Rs 8,500-crore public offering is also on the horizon for its construction and engineering firm, Afcons, with plans to sell shares worth nearly Rs 7,000 crore.

Longstanding dispute and potential stake sale

Relations between Tata Sons and Shapoorji Pallonji Group have been strained since 2016, following the ousting of Cyrus Mistry. In 2020, the SP Group sought to exit Tata Sons as part of its minority shareholder oppression case, proposing to exchange its 18.4 per cent stake for shares in Tata Sons’ listed subsidiaries.

Shapoorji Pallonji Group valued its stake in Tata Sons at Rs 1.75 trillion in an affidavit submitted to the Supreme Court in December 2020, although Tata valued it at Rs 70,000-80,000 crore. Now, the value of Tata Sons’ stake in its listed entities has since increased by 90 per cent, rising from Rs 8.68 trillion in December 2020 to Rs 16.44 trillion. Consequently, the SP Group’s stake in Tata Sons is presently valued at approximately Rs 3.02 trillion, up from Rs 1.6 trillion in 2020 calculated on a proportional basis.

Despite this, the stake's value is discounted due to the lack of control. At Tata Sons’ recent annual general meeting, the SP Group suggested listing the holding company to unlock value and increase liquidity for all stakeholders. Any potential sale of SP Group’s stake could involve various options, such as a buyback, private equity involvement, or the transfer of shares in listed companies like Tata Consultancy Services (TCS).

In March this year, investment bank Spark Capital valued Tata Sons at up to Rs 8 trillion, with SP Group’s stake estimated at Rs 1.46 trillion. To manage its debt, Shapoorji Pallonji Group has leveraged its entire stake in Tata Sons to raise $2 billion from private credit funds. The stake is held through Cyrus Investments and Sterling Investment.