In a set of shocking revelations, Cyrus Mistry, who was on Monday unceremoniously ousted from the post of Tata Sons chairman, has said his predecessor and successor Ratan Tata had undermined his authority by exercising his clout. The presence of an “alternate power centres without any accountability and responsibility”, Mistry said, posed the risk of “contravening insider trading regulations” and also exposed the trustees to potential tax liabilities.
In a five-page letter to the Tata Sons board, Mistry claimed he was not given a “free hand” to run the business but was turned into “lame duck” chairman. After his appointment, he wrote, the articles of association of Tata Sons had been modified, changing the rules of engagement between the trusts, board, chairman and operating companies.
Mistry’s letter talks of a “total lack of corporate governance” and the failure on the part of the directors to “discharge the fiduciary duty owed to stakeholders of Tata Sons and of the group companies”. Mistry, 48 — and son of Shapoorji Pallonji Mistry, who has an 18% stake in Tata Sons — has warned the group faces impairments to the tune of $18 billion if just five companies are realistically assessed.
In an insight into the functioning of Tata Sons, Mistry cites the instance of how once the trustee directors Nitin Nohria and Vijay Singh had to leave a a board meeting in progress for almost an hour, keeping the rest of the board waiting, “in order to obtain instructions from Mr Tata”.
“I had to ease out hangers-on prone to flaunting their proximity to power,” Mistry wrote. Tata, he alleged had left him with no choice but to enter aviation since Tata had concluded negotiations to partner with AirAsia and had wanted the proposal “tabled at the forthcoming Tata Sons board meeting”. His pushback, he said, had been hard but futile.
Again, Tata had presented him with a fait accompli on the joint venture with Singapore Airlines. “Without the benefit of time and experience to fully evaluate the proposal, I had to accept that Tata Sons would take a 51% stake in a $100 million joint venture,”
Saying he could not believe he had been removed for non-performance, especially since he had inherited so many troubled and debt-laden businesses, Mistry defended himself, pointing out that in a difficult environment, the group’s net worth had risen to R42,000 crore from R26,000 crore under his watch, while operating cash flows had grown at a compounded 31%.
Describing the precarious financial condition of some group companies, Mistry has said that apart from Tetley and Jaguar Land Rover, all acquisitions had left a huge debt overhang. The European steel business, he said, faced potential impairments of over $10 billion, only some of which has been taken as of date. Indian Hotels had to write down almost its entire net worth in three years. Tata Chemicals still needs tough decisions about its UK and Kenya operations. On the telecom business, Mistry wrote, “If we were to exit this business via firesale or shut down, the cost would be $4-5 billion.” The original deal structure of the Docomo venture raises many questions about its prudence, he observed.
An analysis of the aggregate data of the legacy hotspots — Indian Hotels, the passenger vehicles business of Tata Motors, Tata Steel Europe, Tata Power (Mundra) and Tata Teleservices — between 2011 and 2015 shows the capital employed in these companies had risen from R1,32,000 crore to R1,96,000 crore due to operational losses, interest and capex. This figure is close to the net worth of the group, at present R1,74,000 crore. A realistic assessment of the fair value of these businesses could potentially result in a writedown over time of about R1,18,000 crore.