MUMBAI: Reserve Bank of India has shut the door on Tata Sons’ attempt to surrender its core investment company (CIC) registration, dealing a blow to the efforts of the holding company of the $185bn Tata Group to stay private and bringing a stock market listing a step closer.The central bank has told Tata Sons that its request to give up its CIC registration “cannot be acceded to”, and has instead asked the company to ensure compliance with regulations governing the country’s largest so-called “upper layer” investment companies.RBI’s decision upends efforts by Noel Tata, chairman of Tata Trusts -Tata Sons’ majority shareholder -to keep the company private and strengthens the hand of Shapoorji Pallonji Group chairman Shapoor Mistry, Noel’s brother-in-law, who has pushed for a listing. The SP Group owns 18.4% of Tata Sons.Tata Trusts want to keep Tata Sons private to preserve their long-term stewardship of Tata Group and protect its charitable ownership structure, free from the short-term demands of public markets. A listing could bring valuation pressures and shareholder scrutiny that run counter to that model.RBI’s Sept 11 letter is expected to be tabled before Tata Sons’ Sept 17 board meeting. The board can proceed with the IPO, or Tata Trusts can direct Tata Sons to challenge the move before Bombay high court. Under Article 121A of Tata Sons’ Articles of Association, an IPO needs majority approval from Tata Trusts’ two nominee directors, Noel Tata and Venu Srinivasan.Srinivasan’s support for a listing is publicly known. With Noel opposed, the vote would be 1-1, leaving the chairman of Tata Sons with the casting vote. The IPO would then be approved. Even if the issue is taken to Tata Trusts, however, little may change. Sir Ratan Tata Trust, which holds 24% in Tata Sons, is under a regulatory ban, while Sir Dorabji Tata Trust, which owns 28%, cannot take a decision on its own and must act jointly with SRTT.The prospect of an IPO may also prompt the board to ask chairman N Chandrasekaran to reconsider his decision to step down. Chandrasekaran said last month he would not seek reappointment when his term ends on Feb 20, 2027. “But you need a stable pair of hands to take the company through the IPO,” a person familiar with the matter said.Under new Sebi rules, Tata Sons can dilute a minimum 2.5% of its equity in the IPO if its post-listing valuation exceeds Rs 5 lakh crore. It would then have to raise public shareholding to 15% within five years, and to the mandatory 25% within 10 years of listing.Tata Sons has not disclosed a valuation. Analysts estimate it at Rs 10 lakh crore or more, after applying a holding-company discount. For SP Group, which carries Rs 55,000 crore debt, the IPO offers crucial liquidity.
