Tata Sons: The Tata Group is going through a major internal makeover these days. The future of Tata Sons, one of the country’s largest business houses, is being debated. At the center of this debate is Tata Trust chief Noel Tata. Recently, in an interview to Republic TV, Noel Tata made it clear that he is strongly against public listing i.e. IPO of Tata Sons.

He believes that listing on the stock market will completely break the 150-year-old structure of the Tata Group that has kept the company strong until now. This is not just a company’s entry into the stock market, but a fight to preserve the trust and way of working that the Tata Group is known around the world.

Tata Sons becomes a shield in crisis

Tata Sons is basically a holding company. Its main function is to provide direction to all other companies in the group. Noel Tata said that for the last 150 years, Tata Sons has been acting as a strong financial shield for its affiliates. Whenever any Tata Group company goes through tough times, Tata Sons invests its money to save it. Banks, lending agencies, shareholders and suppliers are always unconcerned because of this unmatched trust. They know that Tata Sons stands behind them like a shield in times of crisis.

But if the company goes public, all of this will change forever. Noel Tata’s biggest fear is that after the entry of common shareholders, it will not be easy to invest money in a loss-making or struggling company. External investors only see their own financial benefits and never allow new investment in a sinking company. This will greatly weaken the foundation of the group.

There was a big conflict in the board meeting

The entire controversy came to light after the board meeting of Tata Sons held on September 17. In this meeting, Chairman Natarajan Chandrasekaran was re-elected as Chairman for the next five years. Along with this, the board has also taken a big decision to move towards the listing of the company.

Noel Tata was in the minority in this decision. Meaning he was outvoted. The case brought to the world the infighting within the Tata Group. On one side is the group that wants to transform the company financially by launching it on the stock market. On the other hand, there are people like Noel Tata who strongly believe that the entry of external investors will destroy the fundamental nature of the group which has always depended on providing financial support to its businesses.

New formula to avoid list

To avoid this huge listing pressure, Tata Trusts has devised a new strategy. Tata Trusts owns about 66 per cent stake in Tata Sons. The trust has formally proposed to merge Tata Sons with two of its unlisted subsidiaries. It includes Tata Consulting Engineers along with Tata Electronics Systems Solutions Pvt.

Noel Tata says that the proposed merger will completely overhaul the financial structure of Tata Sons. Doing so will significantly increase the company’s own operating income. Its main objective is to get the company out of the stringent Non-Banking Financial Company (NBFC) regulations under which listing on the stock market is mandatory. According to Noel, there are many holding companies in India that do financial work as well as operating. Taking these steps will reduce dependence on investment income. Also, the old model of ownership will remain clean.

The charity’s mission is under threat

The Tata Group, which manufactures everything from sweets to SUVs, is known worldwide not only for its vast business but also for its philanthropic works. Pointing to this, Noel Tata has raised a big question. It clearly says that post-listing, the company will always be under huge pressure to show better financial performance. External shareholders only want the company to earn maximum profit.

In this blind rush for profit, Tata Sons’ decades-long philanthropic vision may be left behind. Since the trust directly owns 66 per cent of the company, the listing will also have a direct impact on the trust’s charitable work. Noel Tata has expressed hope that the Reserve Bank will understand the seriousness of the matter. He said that he would try to find a middle ground through in-depth talks with the RBI. The whole affair now hinges on whether Tata Sons can save its 150-year-old business model or move on to a new listing route. The proposal is yet to get the approval of the board of Tata Sons as well as the Reserve Bank.