The Supreme Court’s decision on Friday to uphold Cyrus Pallonji Mistry’s removal as executive chairman of Tata Sons and later as director in Tata companies is probably going to stymie the Shapoorji Pallonji Group’s debt-cutting strategy. Aside from overturning the National Company Law Appellate Tribunal’s (NCLAT) decision on Mistry’s reinstatement, the Supreme Court claimed that it might not consider calculating an “equal value compensation” for the SP Party so as for it to go away the Tata Group.
“The Tatas and Mistry would need to better value Mistry’s 18.37% stake in Tata Sons. They need the selection of bringing during a specialist, independent valuation firm or valuer,” said a top financial sector leader who has been monitoring the Tata and SP groups for several years. Shapoorji Pallonji Corporation Private Limited, the SP Group’s flagship company, has debt repayment obligations of nearly Rs 5,400 crore in 2020-21, while the SP Group’s combined borrowings surpass Rs 25,000 crore.
The SP Group told the Supreme Court in September last year that it had been able to exit Tata Sons if it offered an “early resolution” and a “fair, equitable solution,” and priced its stake at Rs 1.75 lakh crore. The Tata Group, on the opposite hand, priced the Mistry family’s stake in Tata Sons at between Rs 70,000 and Rs 80,000 crore. Bankers, legal experts, and financial sector leaders believe that both parties will get to devise an appropriate exit strategy for Mistry which they’re going to go to hire an independent valuer who is suitable to both parties so as to seek out an amicable solution, especially regarding the valuation of SP Group’s 18.3% stake in Tata Sons.
“The valuation of those Tata companies that are listed on stock exchanges will need to be considered,” said a financial sector leader. However, with the Supreme Court ruling in their favour, the Tatas now have the whip hand … but the Tatas will need to engage in some give and fancy reach a settlement.” consistent with a source on the brink of the Tata Group, it’s now up to the SP Group to make a decision whether to retain their interest in Tata Sons or sell it to the Tata Group at the valuation that the group received earlier supported various parameters.
Tata Sons owns an outsized stake within the majority of Tata Group companies, and is specially controlled by two trusts, the Sir Ratan Tata Trust and therefore the Sir Dorabji Tata Trust. While the SP Group initially stated that the worth of its stake in Tata Sons was Rs 1.75 lakh crore, it later stated that the worth was Rs 1.5 lakh crore. The SP Group later filed a cross-appeal, claiming that they ought to be granted 18% stakes altogether downstream Tata firms.
Even if both parties entered into an agreement on a valuation and Tatas decides to get the stake owned by SP Group. Consistent with banking sources, “Tata Group would need to find sufficient funds to get Mistry’s 18.3% stake.” The Tatas would need to find how to call in order to get Mistry’s share. One possibility is that the Tatas form a company to get the Mistry stake.” If each side is unable to seek out an amicable resolution, the Mistrys will seek another round of litigation to secure an inexpensive value for his or her share in Tata Sons.
“The next round of litigation is going to be limited to valuation issues (of SP Group stake). There are different procedures and proven procedures for assessing fair market price. They might be ready to reach an agreement and reconcile. If not, there’ll be another lengthy legal battle,” said A P Singh, a partner at firm M V Kini.
