Mistry family wants to exit Tata Group after rebuff on borrowing

The billionaire Mistry family, the largest minority shareholder of the Tata Group, said it needs to separate its interests after India’s biggest conglomerate took steps to block the family’s attempt to borrow money against Tata shares.
Tata Sons Pvt informed the Supreme Court yesterday that it’s open to buying out the 18% stake owned by the Mistry family’s cash-strapped Shapoorji Pallonji Group if the latter needed to raise money for paying maturing debt.
The SP Group instead wanted to borrow funds using the shares as collateral, a move Tata considers as potentially risky because the securities may end up falling in the hands of unfriendly investors.
“The action by Tata Sons to block this crucial fund raise, without any heed for the collateral consequences, is the latest demonstration of their vindictive mind-set,” the SP Group said in a statement late Tuesday. “It is with a heavy heart that the Mistry family believes that a separation of interests would best serve all stakeholder groups.”
It didn’t specify what any separation would entail. A representative for Tata Sons declined to comment.
The acrimonious divorce between the two groups would end a 70-year partnership that has seen Pallonji Mistry, the 91-year-old patriarch of the family, become a billionaire and help the Tata Group swell to a $113bn software-to-cars empire.
The Tata stake accounts for about a third of Pallonji’s $22.5bn wealth, according to the Bloombergbnaire’s Index. His son, Cyrus, has been locked in a bitter legal fight with Tata since he was ousted as chairman of Tata Sons in a 2016 boardroom coup.
India’s Supreme Court yesterday barred the Mistry group from pledging or selling any Tata shares until October 28, when it starts hearing final arguments in the case. Mistry’s empire, which includes real estate, infrastructure and home appliances, was in preliminary discussions to borrow as much as $1bn by pledging a part of its Tata Sons stake to pay maturing debt after asset sales stalled amid the coronavirus pandemic, Bloomberg News reported in March, citing people familiar with the matter.
“The Shapoorji Pallonji Group is in a financial mess,” said Arun Kejriwal, director at KRIS, an investment advisory firm in Mumbai. “This is the first time the group has expressed willingness to sell Tata shares because the water has gone over its head.
The best option before the group is to sell the stake to the right suitor to tide over the crisis.”
The SP Group had Rs92.8bn ($1.3bn) in external debt at its main holding vehicle, Shapoorji Pallonji and Company Pvt, as of end-February, according to Care Ratings Ltd.
The group-wide debt was estimated by the local credit rating firm to be more than Rs300bn as of March 2019.
The Tata Group has taken decisions that have destroyed value and total debt in its major companies has increased by about 1tn rupees over the last three years, according to the SP Group’s statement.
“The impact of these actions continue to hurt minority shareholders,” it said, adding that “the Mistry family were in the midst of raising funds against the security of their personal assets” to “protect the livelihoods of its 60,000 employees and over 100,000 migrant workers.”
The two conglomerates have been engaged in prolonged litigation over issues such as Mistry’s broader challenge to his removal as chairman of Tata Sons, a seat on Tata Sons board, Tata Sons turning into a private limited company, and now over the proposed pledging of shares.
Back in 2016, immediately after the ouster of Mistry as chairman of Tata Sons, Tata family trusts had reached out to sovereign wealth funds and other long-term investors to gauge their interest in purchasing the Mistry family stake if it became available, people familiar with the matter said then.