In 2022, India’s central bank, the Reserve Bank of India (RBI), classified Tata Sons as an “upper layer non-banking financial company” because of its systemic importance and investment activities. This created a listing obligation on the group.
Tata Sons sought to get out of this classification by repaying their debt and arguing that they do not borrow directly from the public markets.
But after sitting on its application for over two years, the RBI rejected the company’s bid to get out of the framework earlier this month, pushing the group closer to a stock market debut.
In a statement, Tata Trusts reiterated its long-held opposition to going public and said “all available options and not a listing alone” are being explored even though its trustees are no longer unanimous in their position on the matter.
Potdar says the regulator has no power to force any company to go public and the issue will almost certainly be legally challenged by Tata Trusts.
The RBI meanwhile has pre-emptively, external approached the courts seeking to be heard first in any matter related to the ‌listing.
The issue has sharply divided opinion among corporate pundits.
Many in the group, including the late Ratan Tata and veteran director NA Soonawala, have long argued strongly for keeping the group private.
A publicly held Tata Sons could significantly reduce the control and special rights the Tata Trusts wield over the group.
They say the Tatas have a unique operating structure where the majority shareholder is a charity which uses dividends received from commercial arms to fund hospitals, universities and research.
A listing, they say, will destroy its character by making it accountable to outside shareholders whose focus would be financial returns.
“A new group of shareholders might say, ‘Don’t declare dividends; we need to reinvest this money in the companies.’ What happens then? The first casualty will be the hospitals they run,” said Potdar.
Opponents of the initial public offering (IPO) also worry that bringing in public investors will weaken the group’s internal support function to rescue distressed businesses and expose the company to quarterly performance pressures.
Moreover the timing is another crucial factor.
“The group currently faces large financial commitments from recently formed subsidiary companies, including Air India, investments in long gestation projects, and losses in newer ventures,” Soonawala wrote, external in a piece for Times of India.
“The current situation in the case of Air India would be an acid test. All these would need to be disclosed fully in an IPO prospectus. Consolidated financial statements – reflecting subsidiary losses and borrowings – may not present an especially attractive picture to sophisticated investors, pointing to wrong timing for an IPO at the present time.”
Many, including Potdar, also argue that globally, industrial foundations are being protected as sources of patient capital – money that can be committed for years to fund long-gestation projects and social goals. By forcing the Tatas to list, India is going the other way.
