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Thursday, April 15, 2021

Tata-Mistry case: SP Group debt recast may face hurdle, valuation a thorny issue

“The Tatas and Mistry will have to do proper valuation of Mistry’s 18.37 per cent stake in Tata Sons. They can bring in a professional, independent valuation firm or valuer,” said a top financial sector leader who has been tracking the Tata and SP groups for several years.

Written by George Mathew , Aashish Aryan , Sandeep Singh | Mumbai, New Delhi |
March 27, 2021 9:34:39 am
Cyrus Misrty, son of tycoon Pallonji Mistry.

The Supreme Court’s judgment on Friday upholding the removal of Cyrus Pallonji Mistry as the executive chairman of Tata Sons and subsequently as director in Tata companies is likely to stymie the Shapoorji Pallonji Group’s plan to cut debt, said experts.

Apart from completely overturning the National Company Law Appellate Tribunal’s (NCLAT) ruling on reinstatement of Mistry, the apex court said it would not go into the question of deciding a “fair value compensation” for the SP Group so that it could exit the Tata Group.

“The Tatas and Mistry will have to do proper valuation of Mistry’s 18.37 per cent stake in Tata Sons. They can bring in a professional, independent valuation firm or valuer,” said a top financial sector leader who has been tracking the Tata and SP groups for several years.

The SP Group’s flagship company, Shapoorji Pallonji Corporation Private Limited, has debt repayment obligations of close to Rs 5,400 crore in 2020-21, while the SP group consolidated borrowings are in excess of Rs 25,000 crore.

In September last year, the SP Group had told the apex court that it was ready to exit from Tata Sons, provided it gets an “early resolution” and a “fair, equitable solution”, and valued its stake at Rs 1.75 lakh crore. On the other hand, the Tata Group had valued the Mistry family shares in Tata Sons between Rs 70,000 and Rs 80,000 crore. Bankers, legal experts and financial sector leaders feel that both the sides will have to work out a suitable exit plan for Mistry and they may have to get an independent valuer who is agreeable to both the sides to reach to an amicable solution especially on the valuation of SP Groups 18.37 per cent holding in Tata Sons.

Tata Sons, an unlisted company, holds significant stake in most Tata group companies and is, in turn, held majorly by two trusts, the Sir Ratan Tata Trust and the Sir Dorabji Tata Trust.

“The valuation of these Tata companies, which are listed on the stock exchanges, may have to be considered. However, with the SC ruling coming in favour of the Tatas, they have got an upper hand… but the Tatas will have to go for some give and take to arrive at a settlement,” the financial sector leader said.

Source close to the Tata Group, however, said it was now up to the SP Group to decide whether they wanted to stay with their holding in Tata Sons or sell it to the Tata Group at the valuation that the group arrived at earlier based on various parameters.

“They can’t go to the court for valuation as it is a matter between the buyer and seller. Also, Tatas are not telling Mistry’s to sell their holding, it is they who want to sell, so they have to take the call,” said the source.

Though the SP Group had claimed the value of its stake in Tata Sons at Rs 1.75 lakh crore, it later claimed a valuation of Rs 1.5 lakh crore. The SP Group, in a cross-appeal later filed, said that they should be given 18 per cent in all downstream Tata companies.

Even if both the parties agreed to a valuation and Tatas decide to buy the stake held with SP Group, banking sources say Tata Group will have to find enough funds to buy out the Mistry’s 18.37 per cent stake.

“Who will buy Mistry’s stake? Do Tata Trusts have enough funds to buy out Mistry stake? The Tatas will have to find a way out to buy the stake of Mistry. One way could be that the Tatas float a holding company to buy the Mistry’s stake,” he said.

In the event that both the parties fail to arrive at an amicable solution, the Mistrys would opt for another round of litigation to get a fair value of their stake in Tata Sons,

A P Singh, partner at law firm M V Kini said.

“The next round of litigation will be limited to aspect of valuation (of SP Group stake). There are various procedures for deriving a fair market value, and there are established procedures. They might come to a common understanding and reconciliation. If not, there will be another lengthy litigation,” Singh said.

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