Calcutta, Aug. 8: The Tatas have decided to kick-start the process of disentangling the cross-holdings among major group companies in its stable.
The Tatas have a stable of 93 companies, but only a dozen or so are listed on the bourses.
Ratan Tata, chairman of the $22-billion conglomerate, said it has taken a policy decision not to have a cross-holding structure.
All leading Tata companies hold stakes in each other — and the holding is lumped together under the catch-all phrase “promoter group holding”. Tata Tea has a 7.15 per cent stake in Tata Chemicals which, in turn, holds 7.68 per cent in Tata Tea. But the disentangling process will not be done in a tearing hurry.
“We have agreed, in principle, not to cross invest but it will be done in a way so as not to affect the performance of the company or the shareholder value,” Tata said here today.
Industry observers feel one of the ways that the cross holding could be untangled is by getting Tata Sons — the main holding company — to buy out stakes from group companies.
“Companies that sell their stakes in the group outfits will make a neat pile of cash, for example, Tata Motors could make a substantial sum of money by selling its 4.66 per cent stake in Tata Steel,” they added.
Speaking at the 43rd annual general meeting of Tata Tea in Calcutta today, Tata reaffirmed the group’s stance to increase promoters’ stake in group companies, including Tata Tea.
The move comes at a time when the group has decided to shore up its stake in various companies to ward off a possible takeover threat. Lately, a number of companies, including the Tatas and the Birlas, have been ratcheting up their holdings in group companies through a spate of preferential issues. With Tata ruling out cross holdings, the group is likely to use its investment companies as the vehicle to raise the stakes in the group companies.
This was evident recently in the case of Tata Steel where Tata Sons, the unlisted main promoter company, decided to buy shares to raise promoters’ holding.
Incidentally, all leading Tata companies have historically operated with a very low promoter holding, making them possible takeover targets. In a way, the move to untangle cross-holdings will also help the Tatas to reduce the vulnerability to takeover attempts.
Today, if someone manages to acquire Tata Steel, the acquirer will also get an 8.46 per cent share in Tata Motors. “By transferring stakes from listed to unlisted entities, such situations could be averted,” analysts added.
Elaborating on the cross-holdings issue, R.K. Krishna Kumar, who sits on the Tata Sons board, said some cross-holdings might still remain.
Tata Tea stake hike
In line with the group’s policy, the promoters’ stake in Tata Tea will go up from 28.60 per cent at present. “There are companies where promoters’ share has been increased between 30 and 33 per cent,” Krishna Kumar said.
Going forward, the group intends to take its promoters’ holding to over 50 per cent even though this will prove to be an expensive proposition, he added. But the option of creeping acquisition is not being considered now.
Promoters have the option to raise their stake in companies by 5 per cent every year using the Sebi-mandated creeping acquisition route. “But that’s not an option we are considering,” Tata said and added that no budget had been earmarked to raise the promoters’ stake in various group companies.
“Yes, it has been restructured over a period of time and that process will continue. But there will still have to be some strategic holdings which have added tremendously to the benefit of shareholders. If you see how it has benefited shareholders, you will find its own justification,” he added.
Kumar also said the entire process might involve rearrangement of a few of the holding companies.