Tata Trusts proposes restructuring plan to keep Tata Sons private

Tata Trusts on Monday proposed merging two operating firms Tata Electronics Systems Solutions TESS and Tata Consulting Engineers TCE with the Tata Sons in a restructuring attempt that would make the Tata Group holding company retain its private status and avoid potential listingThe restructuring plan will help Tata Sons Private Limited TSPL the holding company of the USD 180 billion Tata conglomerate to neither be a nonbanking financial company nor a core investment company Tata Trusts as majority shareholders with a 66 per cent stake in Tata Sons in a statement said the strategic reorganisation plan for the holding company which when given effect to would ensure that the reorganised entity would neither be a lsquoNonBanking Financial Companyrsquo NBFC nor a lsquoCore Investment Companyrsquo CICThe move comes after Tata Trusts Chairman Noel Tata had opposed listing the holding company had asked the Tata Sons board to explore all other options to avoid listing after the Reserve bank of India had rejected its application to surrender its CIC registrationThe Tata Trusts believe that the proposed reorganisation and action plan for compliance would be in the best interests of the Tata Group as well as its stakeholders in addition to being a regulatory permissible and compliant form of reorganisation of a CIC it saidThe Tata Trusts have accordingly written to the TSPL Board to consider and approve the proposal and to take necessary steps including applying to the RBI for the necessary noobjection certificate as required for the proposed merger and reorganisation of TSPL it addedWhat would the merger meanAccording to Tata Trusts the amalgamated entity post the merger of the two operating companies with Tata Sons will have operating revenues of Rs 105043 crore accounting for 643 per cent of the total income of the amalgamated entity compared to its income from financial assets of Rs 40072 croreIt added that the amalgamated entity will not meet the principal business criteria of an NBFC and will also not meet the conditions applicable to CICThe entity would have net assets of Rs 200158 crore of which investments in group companies would constitute for Rs 177120 crore or less than 90 per cent of total net assetsThe proposal would allow Tata Sons to revert to its to its previous operating model which it followed for almost 80 years of its existence with its own operations and revenues in addition to being a holding company for the Tata Group Tata Trusts saidIt pointed out that Tata Consultancy Services TCS was a division of Tata Sons until it was demerged into a separate subsidiary in 2004This will also be in line with the previous classification after 2004 by RBI of TSPL as a nonbanking nonfinancial company it saidTata Sons application to surrender CIC rejectedTata Sons had sought deregistration in March 2024 after becoming debt free to avoid the listing requirement that applies to upper layer NBFCs However the RBIs rejection of the application to surrender CIC registration means the holding company faces the mandatory listing as per the regulators rules applicable to upper layer NBFCsTata Trusts had disagreed with Boards proposal for listingTata Sons Board earlier this month had resolved to move ahead with the listing the holding companyTata Trusts however did not agree to the listing of Tata Sons maintaining that the centuryold structure of Tata Sons and the Tata Group should be preservedNoel Tata had pushed for the company to remain unlisted and had said If Tata Sons is publicly listed the rights of Tata Trusts as majority shareholders stand to be seriously impairedHe had also pointed out that the RBI communication on September 11 does not mention listing and the regulator has not prescribed any particular step nor has it said the company is in breachWhat its legal effect is and what it requires of this Company and by when are questions upon which thisBoard has formed no view he had said