"The CreditWatch signals that we could potentially reassess the relationship between these Tata Group entities and the holding company Tata Sons, the potential for extraordinary support from Tata Sons, and therefore the ratings on these group entities," it said in a statement.
S&P Global Ratings on Friday placed the ratings on Tata Group firms – Tata Steel, Tata Motors, ABJA Investment Co Pte Ltd, TML Holdings Pte Ltd and Jaguar Land Rover Automotive Plc – on CreditWatch with positive implications, which implies a possible revision in ratings.
“The CreditWatch signals that we could potentially reassess the relationship between these Tata Group entities and the holding company Tata Sons, the potential for extraordinary support from Tata Sons, and therefore the ratings on these group entities,” it said in a statement. S&P regarded the credit quality of Tata Sons to be “strongly investment grade”. “We believe Tata Sons and its subsidiaries and associates have become more cohesive in recent years. Previously, we considered Tata Sons as an unlisted investment holding company for the group and did not factor in any direct support in assessing the credit profiles of the individual group companies,” it said.
Stating that it will seek to resolve the CreditWatch in the next four to six weeks, S&P said the review will focus on whether Tata Sons’ support could vary depending on each entity’s strategic importance, branding, and financial contribution to the group. “Although we view the Tata Group companies as important to the group, Tata Sons’ less than majority ownership could justify a lower level of support. We may then potentially assess these entities to be moderately strategic or, in a less likely scenario, strategically important to Tata Sons, which would result in rating uplift of one and three notches, respectively.
“It is also possible that our review could conclude that the expected support for some entities is not strong enough to warrant a rating uplift,” it added. While the various group companies operate independently under professional directors and management, there appears to be a greater influence of Tata Sons on the strategy and financial policies of the group, it said.
To support its argument, S&P cited recent developments including several Tata Group entities prioritising debt reduction to a greater extent, which is consistent with Tata Sons’ objectives. Also, between 2019 and 2021, Tata Sons has significantly increased its ownership in several group companies.
Its shareholding in Tata Motors and Tata Power increased to about 46 per cent currently from about 35 per cent and 31 per cent, respectively, in 2019.
“While Tata Sons has historically supported group entities via equity participation in certain situations, recent support to entities such as Tata Teleservices Ltd provides further evidence of financial support during times of liquidity stress,” S&P said. Tata Sons provided financial support and injected capital in Tata Teleservices to reduce its debt and improve liquidity. “While Tata Sons may not step in with support under normal circumstances, e.g. to help with deleveraging, we believe the company is more likely to provide financial support to group entities in the event of liquidity stress,” it said.