Tata Sons has to list by Sept 2025 under RBI guidelines
Tata Sons, the principal holding company of the Tata Group, is facing a unique situation related to its listing, which is required to be completed by September 2025. The Reserve Bank of India (RBI) has categorized it as an upper-layer NBFC (non-banking financial company), which entails higher regulatory compliance.
To avoid this categorization and the associated regulatory burden, Tata Sons is likely considering various options. The decision to go ahead with the listing is potentially significant as it could result in substantial benefits for the company and its shareholders, including Tata Trusts.
If Tata Sons proceeds with its listing and is valued at around Rs 11 lakh crore, a 5 percent offering could be worth approximately Rs 55,000 crore. This would make it one of India’s largest public offerings, according to reports from the Times of India.
The exact strategy Tata Sons will adopt to navigate the regulatory landscape while ensuring a successful listing remains to be seen. Nevertheless, this development highlights the intricacies and considerations involved in the process of taking a significant holding company public in India.
The Reserve Bank of India (RBI) has established stringent regulatory requirements for upper-layer NBFCs (non-banking financial companies), including the mandatory listing within three years of being classified as such. This requirement aligns with the listing mandate for private banks and is intended to encourage broader ownership and transparency in the financial sector. The classification of an NBFC as an upper-layer entity depends on factors such as its size and interconnectedness.
Tata Sons, led by Chairman N. Chandrasekaran, has been exploring options to potentially seek an exemption from the RBI’s upper-layer NBFC classification, which was initially introduced in September 2022. Analysts have pointed out that while an IPO (initial public offering) would enhance the liquidity of Tata Sons’ shares, there could be a valuation challenge. Investors often apply a discount to the valuation of holding companies during the evaluation process, which could affect the company’s perceived worth in the public markets.
The decision regarding Tata Sons’ listing and how it navigates the regulatory framework will likely depend on various factors, including the company’s assessment of its valuation prospects, the benefits of broader ownership, and compliance with RBI regulations. This situation underscores the complexities and considerations involved in taking a significant holding company public in India, especially when it comes to regulatory compliance and investor perceptions.
Tata Sons, while having some time to comply with the RBI’s notification regarding its classification as an upper-layer NBFC (non-banking financial company), is reportedly exploring various options to potentially avoid this categorization. Such options may include reorganization or other strategic moves.
The RBI’s regulations for upper-layer NBFCs mandate the development of a board-approved roadmap for compliance within three months from the date of notification. It remains uncertain whether the Tata Sons board has formulated and approved such a plan at this time.
Additionally, Tata Sons’ indirect subsidiary, Tata Capital Financial Services, is also included in the RBI’s upper-layer NBFC list. Notably, Tata Sons is in the process of merging Tata Capital Financial Services into Tata Capital. This merger is aimed at preparing Tata Capital for a potential listing in the future.
The company’s considerations and actions in response to the RBI’s classification will likely depend on various factors, including its assessment of the regulatory requirements, the potential impact on its business operations, and its strategic objectives. This development highlights the importance of regulatory compliance and strategic planning for large conglomerates like Tata Sons in India’s financial sector.
The intention of Tata Sons to simplify its corporate structure and create a larger, unified entity with a stronger capital and asset base, as mentioned in its FY23 report, aligns with the company’s long-term goal of becoming a listing-ready entity. This objective is in accordance with the Reserve Bank of India’s (RBI) regulations for upper-layer NBFCs (non-banking financial companies), which require them to go public within three years of being classified as such.
The concept of listing Tata Sons has been a consideration for a significant period. In December 2004, Ratan Tata, who was the chairman of Tata Sons at the time, expressed interest in the possibility of listing Tata Sons, envisioning a structure somewhat akin to Berkshire Hathaway, led by Warren Buffett. Ratan Tata’s idea involved using funds to acquire or nurture a company of a stature similar to Tata Consultancy Services (TCS), which could serve as a platform for eventually taking Tata Sons public.
This historical perspective sheds light on the long-term vision and strategic thinking within the Tata Group regarding the listing of Tata Sons. The current steps taken by the company to simplify its corporate structure and prepare for a potential listing align with this vision and also comply with regulatory requirements.
