Noel Tata proposes restructuring Tata Sons, Rs 25,000-crore buyout of SP Group

Noel Tata has proposed a restructuring of Tata Sons to address its regulatory classification under Reserve Bank of India (RBI) rules and a Rs 25,000-crore capital reduction to facilitate the exit of the Shapoorji Pallonji (SP) Group.

In two letters dated October 29, Tata has asked that both proposals be included in the agenda of the Tata Sons board meeting scheduled for November 26. He has also proposed making presentations on both matters. Neither proposal has been approved by the board.

The first proposal concerns an RBI communication dated September 11 and a restructuring plan submitted by the Sir Dorabji Tata Trust and Sir Ratan Tata Trust on September 28.

The plan seeks to change Tata Sons' regulatory classification by merging two wholly owned subsidiaries, Tata Electronic Systems Solutions and Tata Consulting Engineers, into the holding company. This would give Tata Sons operating businesses alongside its investment activities, potentially allowing it to exit its classification as a non-banking financial company (NBFC) and a core investment company (CIC).

The merger would require prior RBI clearance and subsequent statutory and regulatory approvals.

The second proposal concerns the SP Group's request for Rs 25,000 crore in funding. Tata has sought a detailed management presentation covering valuation, payment schedules and other conditions.

The draft resolution proposes cancelling ordinary shares held by SP Group shareholders at fair market value, determined by a merchant banker or registered valuer. Payments would be made in two or more instalments over 18 months.

The proposed buyout would require shareholder approval, lender consent and sanction from the National Company Law Tribunal (NCLT).

The funding plan rules out fresh borrowings and public funds. Instead, it identifies internal cash flows, sales of listed-company stakes, third-party investments in newer businesses and initial public offerings through offers for sale as possible sources.

Both proposals will now be placed before the Tata Sons board for consideration.