RBI norms may force Tata Sons to consider mega IPO

“The Tata group’s non-banking financial company (NBFC) is classified as ‘upper-layer’ NBFC and because of this, Tata Sons has to be listed on the stock exchanges by September 2025,” the report said.

When sought clarification on the matter, Tata Sons spokesperson did not respond to a mail from The Indian Express.

Tata Trusts, headed by Ratan Tata, holds 66 per cent stake in Tata Sons. As the Pallonji Mistry group holds 18.4 per cent stake in the company, the Mistry group stake is likely to be valued at Rs 198,000 crore.

The Tata Group has over 100 operating companies across the sector. Tata Sons, the group’s non-banking financial arm, supports and promotes all these businesses. “India’s central bank classified Tata Sons as an “upper layer” NBFC in 2022, suggesting it must go public within three years. This could possibly be one of the biggest IPOs…not just for the Tatas but in the history of the Indian stock market,” the report said.

The RBI framework categorises NBFCs in Base Layer (NBFC-BL), Middle Layer (NBFC-ML), Upper Layer (NBFC-UL) and Top Layer (NBFC-TL).

The RBI circular dated October 22, 2021, directed that NBFC-UL should be mandatorily listed within 3 years of identification as NBFC-UL. Disclosure requirements should be put in place on the same lines as applicable to a listed company even before the actual listing, as per Board approved policy of the NBFC, the RBI said.

The RBI published the list of 16 upper layer NBFCs on September 30, 2022. “This means Tata Sons will have to list its shares by September 30, 2025 unless the RBI extends the deadline or gives an exemption,” said a financial sector analyst.

The upper layer NBFCs will comprise of those NBFCs which are specifically identified by the Reserve Bank as warranting enhanced regulatory requirement based on a set of parameters and scoring methodology. The top ten eligible NBFCs in terms of their asset size shall always reside in the upper layer, irrespective of any other factor. Tata Sons, which is listed at the fourth position, is the only core investment company in the RBI list.

NBFCs of the Birlas, Bajaj, the Piramals and the Mahindras are in the ‘upper layer’ list. The RBI is apparently not in favour of relaxing the listing requirement for one entity as others will rush to the central bank for a similar favour.

Tata Technologies delivered around 140 per cent returns flat in a single day, listing at Rs 1,200 against the issue price of Rs 500. “Since then, those who missed this great opportunity have been waiting with bated breath for the Tata Group to launch another IPO from its kitty of many unlisted companies,” the report said.

Total revenue of Tata Sons, the unlisted holding company of major Tata group companies, on a standalone basis rose to Rs 35,058 crore in FY 2023 as against Rs 24,132.97 crore in the previous year, a rise of 47 per cent. The company’s profit for the year also rose to Rs 22,132.38 crore for the year from Rs 17,171.21 crore a year ago, a growth of 28.89 per cent. The income of Tata Sons is mainly from tech giant TCS which made a profit of Rs 39,106 crore in FY2023

According to India Ratings, Tata Sons has considerable financial flexibility because of the substantial market value of its investments (Rs 11.2 lakh crore as of March 2023), which is 51 times of the total borrowings (FYE23: Rs 22,200 crore) on the standalone balance sheet. The cash flows from investee companies, including TCS, by way of dividend and share buyback (from time to time) are largely sufficient for investments in group companies, it said.

The Tata group is reportedly considering listing four more companies —   Tata Autocomp, BigBasket, Tata Play and Tata Advanced Systems.

Upper layer NBFCs listed by the RBI:

1. LIC Housing Finance Ltd
2. Bajaj Finance Ltd
3. Shriram Transport Finance Company Ltd
4. Tata Sons Private Ltd
5. L & T Finance Ltd
6. Indiabulls Housing Finance Ltd
7. Piramal Capital & Housing Finance Ltd
8. Cholamandalam Investment and Finance Company Ltd
9. Shanghvi Finance Private Ltd
10. Mahindra & Mahindra Financial Services Ltd
11. PNB Housing Finance Ltd
12. Tata Capital Financial Services Ltd
13. Aditya Birla Finance Ltd
14. HDB Financial Services Ltd
15. Muthoot Finance Ltd
16. Bajaj Housing Finance Ltd