Shares of Tata Chemicals witnessed a sharp decline of over 10 percent on March 11 as news emerged regarding the diminishing likelihood of an IPO by Tata Sons, which was anticipated to uplift the company’s value.
The stock of Tata Chemicals had surged by 36 percent in the previous week amidst speculations surrounding the IPO plans of several Tata group entities’ parent company. However, recent reports indicate a shift in strategy as the conglomerate explores alternative paths to comply with the regulatory norms set by the Reserve Bank of India (RBI).
As of 9:26 am, Tata Chemicals was trading at Rs 1,207.45 on the National Stock Exchange, marking an 8 percent decline from its previous close. Despite this downturn, the stock has demonstrated an impressive 27 percent surge over the past month, outperforming the Nifty 50 benchmark index which has recorded a 4 percent increase during the same period.
Tata Sons, categorized as a “core investment company (CIC)” by the RBI, falls under the “upper layer” NBFC classification, thereby subjecting it to stringent regulatory obligations including a mandatory listing on the public market within three years of notification.
In September 2023, the Reserve Bank of India (RBI) issued a notification mandating Tata Sons to list on exchanges by September 2025. However, sources informed CNBC TV-18 that the long-awaited listing is now doubtful. Tata Sons is exploring various options, including the potential separation of Tata Capital, to ensure compliance with RBI regulations.
According to RBI rules, if a “core investment company” has assets valued at less than Rs 100 crore and does not raise public funds, it can avoid being classified as a Credit Information Company or an “upper layer” NBFC, thus exempting it from the requirement of a public listing.
As part of the compliance strategy, efforts to reduce group debt are also under consideration. If the Tata Sons IPO does not materialize, Tata Chemicals stands to lose out on potential value unlocking, as it is expected to be the biggest beneficiary of the highly anticipated public issue.
According to a Spark Capital note released last week, four Tata Group companies – Tata Motors, Tata Chemicals, Tata Power, and Indian Hotels – have ownership in Tata Sons. However, the most practical way to capitalize on this potential value unlocking opportunity is through Tata Chemicals, as it holds a 3 percent equity stake in Tata Sons.
Tata Sons’ market capitalisation was estimated to be around Rs 8 lakh crore by Spark, excluding holdco discounts and optionalities. By that calculation, Tata Chemicals’ equity stake in Tata Sons could be worth as much as Rs 19,850 crore, it added.
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