Ruling out any major impact on the ratings of Tata group companies if Tata Sons went public or the incumbent chairman N Chandrasekaran was voted out, S&P Global Ratings said these acts could at best reshape the assessment of group support and financial policy over the longer term as all group companies are run by independent professional managements.
Citing Tata's long history and conservative management approach, the agency said Tuesday, “any changes to the Tata group's financial policies are likely to be gradual. Therefore, a potential listing of Tata Sons and leadership transition at the group would therefore have no immediate impact on our ratings on group entities."
The agency said it views the rated Tata companies as being run by independent professional management teams, although Tata Sons influences their strategy.
“A routine listing of Tata Sons in its current form would be neutral for the credit profiles of Tata group companies. However, bringing public shareholders into Tata Sons could increase scrutiny of investment decisions, capital allocation and support for weaker group companies, potentially placing greater emphasis on financial returns, capital discipline, shareholder distributions, leverage and accountability for strategic investments,” it said.
“However, a change in leadership, group structure or stakeholder priorities could raise questions about the continuity of Tata's strategy and financial policy, as well as the likelihood of group support over the longer term,” S&P said.
S&P currently rates Tata Steel, Tata Motors, Tata Motors Passenger Vehicles, Tata Power, Tata Power Renewable Energy, Tata Capital and Jaguar Land Rover Automotive Plc. It considers all of them strategically important to Tata Sons, resulting in up to three notches of group support.
The issue could be particularly relevant for companies including Tata Steel, Tata Power and Tata Capital, which have significant growth plans, while JLR is undergoing a business transition.
Tata Sons has been under pressure to list after the Reserve Bank rejected its request to deregister as an upper-layer non-banking financial company. The company's board earlier this month moved to comply with the listing requirement, while Tata Trusts, which owns 66.6% of Tata Sons, has opposed the move.
The group also saw a boardroom tussle at the last meeting. Tata Sons board voted on September 17 to reappoint Chandra for a third five-year term after he had earlier said he would step down when his current term ends in February next. Tata Trusts chairman Noel Tata said the reappointment is invalid, exposing a broader disagreement between the trusts and the company board over governance, control and the group's future direction.
S&P said credit profiles of Tata's rated companies had improved in recent years, partly benefiting from the group's relatively conservative financial policy.
The impact of a listing is likely to emerge gradually, however, given the size of a potential Tata Sons initial public offering and the time it would take for public shareholders to become a significant part of the ownership structure.
The agency further said its current assessment is based on Tata Sons being a single, key controlling entity whose strength comes from its ownership of a diversified portfolio of companies.
“Tata Sons' credit quality is solidly investment grade,” it said adding “any change in structure that makes a clear controlling entity less obvious or weakens the holding company's credit profile could affect our view of the group's credit quality, and thereby, the notch up for individual ratings."
