According to people familiar with the matter, Noel Tata's appointment as chairman of the Tata Trusts is expected to ease tensions with the Shapoorji Pallonji Group, potentially paving the way for the latter to explore partial monetization of its 18.4% stake in Tata Sons on mutually agreeable terms.

However, this may not happen right once, as Noel Tata was only recently named chair following Ratan Tata's death.

"The Tatas and Mistrys (of Shapoorji Pallonji Group) have had a shareholder relationship since 1965, and the dispute has only surfaced in the last nine years," according to a person involved. Moreover, "there is a platform today for the Mistry family to communicate with Tata group, and there may be options to divest part of their stake."

Noel Tata's appointment further improves the chance of future interaction between the two sides, considering that his wife Aloo is the sister of the late Cyrus Mistry, who was dismissed as Tata Sons chairman in 2016, resulting in strained relations. Shapoorji Pallonji Group and Tata Sons declined to comment.

"While everything may not be perfect or smooth, the reduced animosity will benefit both sides as shareholders, allowing for better communication," said the source who was cited.

High Level of Debt

"Improved relations could pave the way for SP Group to monetize their stake in Tata Sons and tide over the debt crisis," said a source familiar with the situation.

Tata Sons is the conglomerate's holding company. Although Shapoorji Pallonji Group's consolidated debt has been reduced to Rs 20,564 crore in March 2023, down from Rs 32,500 crore in March 2021, according to Infomerics Ratings, the figure remains high due to increased promoter borrowings to refinance borrowings by its units.

Shapoorji Pallonji Group has effectively monetized various assets over the last two to three years, including Eureka Forbes, Sterling & Wilson Renewable Energy, and the SP Jammu Udhampur Highway. The company intends to dispose of further assets to reduce overall debt.

It plans to conduct a Rs 8,500-crore public offering at its construction and engineering subsidiary Afcons, selling shares worth almost Rs 7,000 crore.

Frayed linkages

Since 2016, Tata-Mistry relations have been strained by mistrust and dispute over Cyrus' removal. In 2020, SP Group attempted to quit Tata Sons as part of their minority shareholder oppression action, intending to exchange its 18.4% interest for shares in Tata Sons' public businesses.

In a December 2020 affidavit to the Supreme Court, Shapoorji Pallonji Group stated that their interest in Tata Sons was worth Rs 1.75 lakh crore. Tata Sons' shareholding in its listed firms has increased by 90%, to Rs 16.44 lakh crore, from Rs 8.68 lakh crore in December 2020. As a result, SP Group's share in Tata Sons is now estimated to be worth Rs 3.02 lakh crore, up from Rs 1.6 lakh crore in 2020 when computed proportionally.

However, the value has been devalued due to a lack of control. At Tata Sons' most recent annual general meeting, Shapoorji Pallonji Group urged that the holding firm explore listing to unleash value and increase liquidity for all stakeholders.

"Any sale of the SP Group's investment, whether entirely or partially, might include a combination of options such as a buyback, private equity involvement, or transferring the stake in listed businesses like TCS," stated a chartered accountant headquartered in Mumbai. "The implications in a slump sale, where an undertaking is sold without considering the individual values of its assets or liabilities, are very significant for income tax purposes."

In March, Mumbai-based investment bank Spark Capital projected Tata Sons' valuation at up to Rs 8 lakh crore, putting SP Group's share at over Rs 1.46 lakh crore. Shapoorji Pallonji Group used its full ownership in Tata Sons to raise $2 billion in private lending financing to repay its debts. Its share in Tata Sons is held by Cyrus Investments and Sterling Investment.