Explainer: How Tata Sons Can Avoid IPO As Company Mulls Options To Skip Public Listing

Tata Sons is required to list on the stock markets by 2025 to comply with RBI's regulations
Tata Sons
Tata Sons

Speculations over Tata Sons' potential initial public offering (IPO) led to a strong rally in the Tata Group stocks last week. Tata Chemicals and Tata Investment Corporation posted strong returns of 34 per cent and 16 per cent, respectively. Overall, 18 out of 24 Tata stocks posted positive returns between March 4 and 7.

However, the party was spoiled due to reports published over the weekend stating that the company is looking to avoid an IPO at this stage. According to a CNBC TV18 report, Tata Group's flagship firm is mulling various options to comply with RBI's regulations without listing on the bourses.

Citing a note by wealth management firm Spark PWM, Bloomberg had reported that the IPO of Tata Sons could fetch the valuations of Rs 8 lakh crore. Of the total shareholding of the company, 65.90 per cent is held by Tata Trusts, 12.87 per cent by Tata Companies (Tata Motors, Tata Steel, Tata Chemicals, Tata Power, among others) and 18.4 per cent by the Mistry family.

Listing on the bourses could have unlocked tremendous value for the stakeholders which led to a rally in the stock markets. While the company has not clarified about its plans yet, reports of the company looking for ways to avoid listing on the bourses has dampened the momentum in Tata stocks. Tata Chemicals and Tata Investment Corporation's shares fell by 10 per cent and 5 per cent during trading hours on Monday.

Why Tata Sons Is Required To List On The Stock Markets

As per the scale based regulations of RBI, Tata Sons has been classified as an upper layer non banking financing company (NBFC) under the category of core investment company (CIC).

RBI circular dated October 22, 2021, stated the listing requirement for NBFCs in the upper layer. The regulations said, "NBFC-UL shall be mandatorily listed within 3 years of identification as NBFC-UL. Disclosure requirements shall be put in place on the same lines as applicable to a listed company even before the actual listing, as per Board approved policy of the NBFC."

Tata Sons was put under the NBFC-UL category in September 2022. This means that to meet RBI's requirements, Tata Sons has to list by September 2025. But if reports are to be believed, the company has other plans.

Tata Sons Looking To Avoid IPO

The company is reportedly looking to restructure its balance sheet to avoid the listing requirement. A Times Of India report suggested that if a CIC doesn't have more than Rs 100 crore in assets and doesn't raise public funds or shifts it to a different entity, then it would be out of the purview of RBI and won't be required to list on the bourses.

Reports suggest that the company is looking hive off Tata Capital or restructure its debt to become net debt free. At the end of FY23, company's total debt was over Rs 20,000 crore. A lawyer cited by the TOI report suggested that if the company becomes net debt free or transfers its debt to another entity, then it can be deregistered as a CIC which will allow it to avoid listing.

Whether the company actually goes for an IPO or restructuring, the eyes of the Dalal Street are on Tata stocks. The anticipation of an IPO is high as the last public listing of a Tata Group company, Tata Technologies, led to a 168 per cent listing gain for investors.

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