Ratan Tata's company repays Rs 20000 crore debt to avoid...

Tata Sons which is a $410-billion holding company of the Tata Group, has taken a significant step to maintain its status as a privately held company. According to a report by The Economic Times, Tata Sons voluntarily surrendered its certificate of registration to the Reserve Bank of India (RBI) after repaying over Rs 20,000 crore in debt. This move allows Tata Sons to avoid the requirement of listing its shares on the stock exchange, which would have been mandatory under RBI regulations if the debt had remained.

The company repaid a total of Rs 20,300 crore in debt, reducing its liabilities significantly. The only remaining obligations are non-convertible debentures and preference shares worth Rs 363 crore. To manage these remaining debts, Tata Sons has set aside Rs 405 crore in deposits with the State Bank of India (SBI) and provided an undertaking to the RBI as part of the process of surrendering its registration certificate.

In September 2022, the RBI classified Tata Sons as a Non-Banking Financial Company – Upper Layer (NBFC-UL). Under this classification, companies are required to list on the stock exchange within three years. However, by repaying a substantial portion of its debt, Tata Sons has lowered its risk profile, which exempted it from the listing requirement and allowed it to give up its NBFC registration.

In terms of financial performance, Tata Sons had a successful fiscal year ending in March 2024. The company saw a 57 percent increase in net profits, reaching Rs 34,654 crore. Revenues also grew by 25 percent, rising from Rs 35,058 crore to Rs 43,893 crore. As of March 31, 2023, Tata Sons had a net debt of Rs 20,642 crore, but by March 31, 2024, this had been converted into a net cash position of Rs 2,670 crore. The company had already reduced its debt by 25 percent in the previous fiscal year.

Tata Sons also declared its highest-ever dividend of Rs 35,000 per share for its shareholders. The Dorabji Tata Trust, which holds a 28 percent stake, and the Ratan Tata Trust, with a 24 percent stake, are the largest beneficiaries. Other shareholders include Sterling Investment, Cyrus Investments, Tata Motors, Tata Chemicals, and Tata Power. The substantial dividend distribution was supported by nearly Rs 24,000 crore in dividends received from 13 of its listed companies, with Tata Consultancy Services (TCS) contributing around Rs 19,000 crore. Tata Motors and Tata Steel also made significant contributions of Rs 2,000 crore and Rs 1,450 crore, respectively.

A key factor in Tata Sons’ debt reduction was the sale of shares in TCS, India’s largest software services exporter. In March 2024, Tata Sons sold 23.4 million TCS shares, raising approximately Rs 9,300 crore. This followed an earlier transaction in December 2023, where the company raised over Rs 12,000 crore by tendering 29.6 million shares in a TCS buyback. These sales slightly reduced Tata Sons' stake in TCS from 72.38 percent in December 2023 to 71.74 percent by March 2024.

Additionally, Tata Sons’ total expenses decreased significantly by 27 percent in FY24, dropping from Rs 3,794.70 crore in FY23 to Rs 2,776 crore. Meanwhile, the return on equity, before exceptional items and tax, was 38.15 percent for FY24, slightly lower than the 39.19 percent recorded in the previous year. By March 31, 2024, Tata Sons’ total investments had grown to Rs 1,44,711 crore, up from Rs 1,30,286 crore the previous year. The market value of its listed investments also saw a remarkable increase of 35.7 percent, reaching Rs 15.21 trillion compared to Rs 11.21 trillion in the prior year.

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