The Tatas and the Shapoorji Pallonji (SP) Group are exploring a separation via share swap, which will allow the Mistrys a gradual exit from its 18.4% stake in Tata Sons. Sources familiar with the developments said under the proposal, SP will surrender its Tata Sons stake either fully or partially in exchange for a basket of shares of some of the listed Tata Group companies.
It is being felt that a marginal stake reduction in a few of the companies where Tata Sons has massive stakes won’t have much of an impact on them. But it would give SP market-liquid equity instead of an illiquid, privately held stake in Tata Sons. SP can then sell those shares in the open market in tranches and take care of its burgeoning debt.
Though a similar proposal was made by SP in 2020 at the height of the non-holds-barred battle between the two sides, the Tatas had then dismissed it, calling it “nonsense” and arguing that the valuation arrived at by the Mistrys was “totally incorrect.” The Supreme Court later rejected SP’s proposal. But sources said the proposal has been revived again as “much water has flown down the river since then”.
SP has pledged its entire stake to refinance a mounting debt burden, estimated at Rs 60,000 crore, much of which was raised to finance large-scale EPC (engineering, procurement and construction) ventures. Of the total liabilities, around half has already been refinanced at higher interest rates, escalating repayment pressure. On the other hand, the Tatas realise that a partial exit to SP is the only way out to stop the noise around listing, which it wants to avoid at all costs.
The share swap talks are only at a preliminary stage but a fresh thinking on the issue has emerged for three reasons. One, Tata Sons’ buyback of SP’s stake would trigger huge capital gains tax for SP, making it a tough pill to swallow. It could also raise Tata Sons’ leverage, which has just been brought down to navigate the Reserve Bank of India’s guidelines on upper-layer non-banking finance companies.
Two, third-party buyers can’t be allowed to acquire Mistry’s stake because of the challenge of valuation and transferability with Tata’s Articles of Association limiting free trade of shares. The third option is listing, a demand that SP has renewed recently. But Tata Sons is determined to remain private.
The proposal, if approved, will of course require approval of boards of all these listed companies, lender consents (because of SP’s pledges), and potentially NCLT/Sebi processes depending on the exact route — a scheme of arrangement vs. secondary transfers).
The proposal, sources said, could be a win-win for both parties. It helps SP convert a hard-to-monetise private stake into market-tradable shares, creating options to refinance or repay debt. For Tatas, it preserves control at Tata Sons as no new external shareholder is involved. More importantly, it could defuse the overhang of an SP exit while keeping group stability.
Apart from regulatory issues, there will of course be issues of control premium and minority discount. As SP owns a minority, illiquid block with transfer restrictions, the Tatas could argue for a discount, but SP will push back citing historical stewardship and long-held ownership
“The share-swap is a pragmatic way to unlock liquidity for SP without disturbing Tata Sons’ control architecture, sources said. Its feasibility, of course, hinges on valuation consensus, Article 75-compliant structuring, and the RBI’s ultimate stance on Tata Sons’ listing status.