Will Tata Sons’ IPO Go Through As Deadline Nears?

Mumbai: A key question circulating in the markets is whether Tata Sons will move forward with its Initial Public Offering (IPO) as the regulatory deadline approaches. Under the Reserve Bank of India’s Scale-Based Regulation (SBR) Framework, Tata Sons has less than a year to launch its IPO, and the process will take at least six months to prepare if initiated now.

Noel Tata, half-brother of Ratan Tata, who was appointed as the head of Tata Trusts on October 11, has already said that he looks forward to carrying on the legacy of Ratan Tata and the founders of the Tata Group.

However, the decision on whether Tata Sons should launch the IPO, remains in the hands of RBI. Of the 15 non-banking financial companies (NBFCs) classified as upper layer that need to be listed, more than 10 have already brought out IPO and the remaining are working towards it. However, Tata Sons is the only company actively trying to get an exemption by taking steps like clearing off its debts and applying to RBI for voluntary surrender of its certificate of registration.

If Tata Sons does get an exemption, other companies may seek similar relief. In such a situation, all eyes are pinned on RBI’s final decision regarding the Tata Sons’ listing.

Meanwhile, some analysts pointed out a case of conflict of interest as Venu Srinivasan, the Vice Chairman of Tata Trusts is also on the board of RBI. With Tata Trusts and Tata Sons belonging to the same group, experts claim that this can be seen as a clear case of ethical dilemma. This could lead to delays in Tata Sons’ IPO plans.

RBI’s SBR framework targeted top-layer NBFCs. The SBR guidelines were issued by the RBI on October 22, 2021, with provisions requiring certain NBFCs to list themselves on the stock exchanges, particularly those categorized in the top layer of the SBR framework. These guidelines came into force from October 1, 2022, with specific instructions on IPO funding coming into effect on April 1, 2022. Notably, Srinivasan was appointed to the RBI board on June 14, 2022.

On September 14, 2023, the RBI released the names of 15 NBFCs placed in the upper layer, including Tata Sons, marking them as systemically important and subjecting them to enhanced regulatory scrutiny. Listing such companies is seen as a critical step towards improving corporate governance and transparency in the financial sector.

The companies categorized in the upper layer include significant financial players such as LIC Housing Finance, Bajaj Finance, Shriram Finance, L&T Finance, and Tata Capital Financial Services. All these entities, with the exception of Tata Sons, have either adhered to or begun taking steps to fulfil the RBI’s mandatory listing requirement.

The public listing of Tata Sons is expected to offer several advantages, including improved access to capital for growth and debt reduction, stronger governance and transparency, and a potential rise in the company’s valuation. Market experts suggest that a Tata Sons’ IPO could unlock substantial shareholder value, with estimates indicating that even a 5 per cent stake could bring in over Rs 55,000 crore, boosting market liquidity and trading volumes.

Furthermore, the listing would increase liquidity for existing shareholders and enhance Tata Sons’ brand visibility. As of June, Tata remains India’s most valuable brand, valued at $28.6 billion.