Tata Trust Halts Shapoorji Pallonji Group's Stake Transfer Proposal - Here's Why

Tata Trusts stood firm on its ground to reject the Shapoorji Pallonji (SP) Group’s proposal to transfer its 18.4 per cent stake in Tata Sons as collateral for fresh loans, as reported by the Mint newspaper. Tata Trusts' chief executive officer Siddharth Sharma informed that Tata Sons shares are not freely transferable according to the company’s Articles of Association, the report stated.

“Tata Trusts would like to reiterate that the shares of Tata Sons are not freely transferable. All transfers are subject to the provisions set out in the Company’s Articles of Association," Sharma told the newspaper in an email response.

Sharma pointed to the articles of association following Tata Sons' decision to convert into a private company after the board dismissed Cyrus Mistry as chairman in 2017. Under this conversion, shares of Tata Sons cannot be transferred without prior approval from the company.

Notably, there is no change of stance from the Tata Group, even after Noel Tata took over as chairman of Tata Trusts, after the death of India's one of the most globally-recognised tycoons Ratan Tata in October.

Earlier, it was speculated that and working relationship between Tata Group and SP Group could be better under Noel Tata. Noel Tata is married to Aloo Mistry, daughter of the late Pallonji Mistry, the former chairman of SP Group.

Tata Trusts, the philanthropic arm of the company, holds a majority 66% stake in Tata Sons—one of India’s largest business conglomerates, with annual revenues exceeding $100 billion.

Background

SP Group is the largest public shareholder of Tata Sons and Pallonji Mistry was the largest individual shareholder of Tata Sons. Their relation started way back in 1936 when the Mistry family bought 12.5 per cent stakes in Tata Sons. After the rights issue, the stakes increased to 18.5 per cent in 1996.

Cyrus Mistry succeeded his father in 2006 as he joined the board of Tata Sons. At the age of 38, he became the youngest director of the company. Mistry soon climbed the ladders and was hailed as the successor of the company in 2011.

Also Read | Tata-Cyrus Mistry Feud: How the Desirable Successor Ended Up Being a Rival

Tata hailed Mistry’s appointment as Deputy Chairman of Tata Sons and said that he would be committed to working with Mistry over the next year to give him the exposure, involvement, and operating experience. Even after his retirement, Tata remained in charge of Tata Trusts, allowing him to continue influencing major decisions in the group.

On October 24, 2016, Mistry was removed from his position. Analysts had reportedly suggested that he was struggling to improve Tata Group's financial performance, with one of the key challenges being the company’s inability to sell its troubled steel business.

Following this, his predecessor Ratan Tata was named as the interim chairman of the company.

The mishaps with SP Group's share started with Cyrus Mistry's sacking in 2016. The SP Group initially pledged 9.19 per cent of its stake in Tata Sons in 2020 and later used the remaining 9.19 per cent as collateral in 2021, raising approximately Rs 22,000 crore in total.

The SP Group is seeking to raise funds to refinance this debt through asset sales, restructuring efforts, and refinancing initiatives. If Tata Group keeps on opposing the transfer of pledged shares then it will likely pose significant hurdles in financing its Rs 22,000 crore debt, which is due by March 2025. Hence, the SP group wants to transfer the pledged shares to new investors to secure fresh loans and refinance the existing debt.

Cyrus died in a car accident in September 2022 shortly after his father Pallonji Mistry who breathed his last in June.