Tata Sons Redefines Debt Strategy, Asks Companies to Pay Liabilities Independently

Tata Sons, the holding company of the Tata Group, has directed the management of all the companies to manage debts and liabilities independently. As the companies are going to take a new financial route to manage liabilities, they will no longer follow the old way of providing letters of comfort and cross-default clauses to lenders, the Economic Times reported, citing official sources. 

Tata Sons has reportedly told lenders that going forward, all capital allocation into new businesses will be through equity investments and internal accruals largely contributed by dividends from the conglomerate’s listed company, Tata Consultancy Services (TCS). 

Each portfolio of the salt-to-software conglomerate, including steel, power, chemicals and technology’s listed firm, will act as a holding company and not Tata Sons. 

The older listed companies like Tata Steel, Tata Motors, Tata Power and Tata Consumer have been taking care of their debts independently, while the new businesses of the Tata Group, such as Tata Digital, Tata Electronics and Air India, have relied on Tata Sons for capital allocation. 

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“Once they achieve significant scale, these companies, too, will manage their own capital requirements,” the ET report, citing an official. 

Additionally, Tata Sons has been taking strides to make its new businesses more profitable. Speaking at the Global Alumni Meet of NIT Trichy last week, Tata Sons chairman N Chandrasekaran said the parent company of Air India is completely devoted to transform Air India into a top-class airline rooted in exceptional services and performance on an international level. Air India was acquired by the Tata Group in 2022. 

Earlier in November last year, following the Air India-Vistara merger, the Singapore Airlines planned to infuse an additional Rs 3,194.5 crore in the joint venture.  

However, the company is currently facing a shortage of planes due to delayed delivery by aircraft manufactures, like Boeing and Airbus.  

Tata Sons also has plans of injecting capital into its digital venture, Tata Digital by the first of 2025. The move comes at the time Tata Digital is gradually narrowing down its losses on a standalone basis. The company’s standalone losses reduced from Rs 1,370 crore in FY23 to Rs 1,201 crore in FY24. Its turnover too showed a positive picture as it doubled from Rs 204.3 crore in FY 23 to Rs 420.5 crore in FY24. 

Similarly, to push its electronics business, the Tata Group is planning to open nine factories in the next two years and investing $18 billion in semiconductors. 

“We are in precision manufacturing in semiconductors assembly and testing; and then will have a design house. Our Hosur plant should be operational in 2025 and our semiconductor fab in 2026,” said Tata Sons chairman at the recent NIT Trichy event. 

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