Mistry said looking at the “legacy hotspots” like Indian Hotels, Tata Motors’ passenger vehicles business, Tata Teleservices and Tata Steel Europe will show that capital employed in these companies
rose from Rs 1.32 lakh crore to Rs 1.96 lakh crore between 2011 and 2015 because of operational losses, interest cost and capital expenditure.
“This figure is close to the net worth of the group at Rs 1,74,000 crore. A realistic assessment of the fair value of these businesses could potentially result in a write-down over time of Rs 1,18,000 crore,” he warned.
When asked about Tata Sons’ response to Mistry’s letter, the spokesperson declined to comment.
Insiders said Mistry, now busy meeting lawyers on his legal strategy, has not kept his 87-year-old billionaire father, Pallonji Mistry, in the loop because of the latter’s frail health. The Mistry family owns 18.5 per cent stake in Tata Sons, while the rest of the shares are owned by Tata Trusts and others. The rest of the Mistry family is “hurt” and is backing Cyrus fully, insiders said. On Wednesday, Mistry visited Bombay House and spent the whole day in his office. Tata was not present at the group headquarters during the visit.
An insider said the relations between Tata and Mistry soured after the latter refused to sign on transaction papers sent by Tata that “from a trickle became a deluge in the last three months”. Besides, Mistry wanted to shut down Tata Steel’s European operations, which is bleeding $1.5 million a day. However, its closure was resisted by Tata. “Why an Indian company should keep investing in a huge, loss-making business in UK is a mystery,” a source in Mistry’s camp said asking not to be named. The Mistry camp also upped the ante and said legal action on many corporate governance issues can be expected in the coming days.
In his communication to the directors, Mistry said he was turned into a “lame duck” chairman despite assurance of full independence by Tata and Kumar Bhattacharya, a member of the search committee when Mistry was offered the job in 2011. But what hurt and surprised him, Mistry said, was his removal on the grounds of non-performance. “As you are aware, the nomination committee and remuneration committee comprising of Vijay Singh, Farida Khambata and Ronen Sen, (two of whom voted for Mistry’s removal) had only recently lauded and commended my performance,” Mistry said.
In the board meeting held on Monday, Khambata had abstained from voting to remove Mistry. Mistry said apart from the “invalidity and illegality” of the business that was conducted on Monday, the board of Tata Sons has not covered itself in glory. Mistry would like to know what changed in the past three months, the insider said.
On the changed articles of association of Tata Sons that gave blanket powers to directors nominated by Tata Trusts to appoint or remove the chairman, Mistry said, its inappropriate implementation created a flux in the decision-making process. “This created alternate power centres, without any accountability or formal responsibility, invalidating the very governance role of the Tata Sons board and the chairman, resulting in dysfunctional governance. The trust nominated directors (Harvard Business School Dean Nitin Nohria and former defence secretary Vijay Singh), who I assumed would use their own, independent judgement and discharge their fiduciary duties, were reduced to just postmen,” said Mistry.
“As an example, once the trust directors (Nohria and Singh) had to leave the Tata Sons board meeting for almost an hour, keeping the rest of the board waiting in order to obtain instructions from Tata,” Mistry said.
On the risk to individual companies, Mistry wrote that the foreign acquisition strategy, with the exception of Jaguar Land Rover and Tetley, have left a large debt overhang on the group. Tata Steel’s European business of Corus alone faced potential debt impairments of in excess of $10 billion (Rs 66,829 crore). “Many foreign properties of Indian Hotels and Orient Express have been sold at a loss. The onerous terms of the lease of The Pierre in New York are such that it would make it a challenge to exit. Tata Chemicals still needs tough decisions about its UK and Kenya operations,” Mistry said.
Mistry said Indian Hotels acquired the Sea Rock property in Bandra at highly inflated prices and housed it in an off-balance sheet structure. Due to these legacy issues, Indian Hotels had to write off its entire net worth in the last three years. Indian Hotels was run by R K Krishna Kumar, a confidant of Tata when decisions on these acquisitions were taken.
Mistry said loans given to Chennai-based entrepreneur C Sivasankaran by Tata Capital have turned bad, which were given on the advice of the then executive trustee of Tata Trusts R Venkataramanan (now managing trustee), which resulted in the firm recognising an abnormal size of non-performing assets.
Besides, exiting the telecom business, Mistry said, will result in a cost of $4-5 billion (about Rs 26,000-33,000 crore) to the Tata group apart from paying $1.2 billion (about Rs 8,000 crore) in cash to Japanese partner, NTT DoCoMo. The situation at Tata Power was worse as it aggressively bid for the Mundra power project based on low-priced Indonesian coal and with the changes in rules there, the project made losses of Rs 1,500 crore in FY14 alone. Given that Mundra has Rs 18,000 crore of capital employed, this substantially depresses return on capital, Mistry said.
Tata Motors Finance extended credit with lax risk assessment, he said. As a result, NPAs crossed Rs 4,000 crore. He said the Nano project always lost money and peaked at Rs 1,000 crore. Mistry said the project had to be shut down but was kept alive as that would stop supply of Nano gliders to an entity in which Tata has personal stake.
As a turnaround strategy, Mistry said the group made several exits from businesses apart from easing out “hangers on” prone to flaunt their proximity to power.
In a more serious charge, Mistry said Tata called him to his room and handed him a report prepared by Bain & Company on AirAsia. Tata wanted the proposal to be brought up at a Tata Sons board meeting, but Mistry was against the investment. Later, a similar proposal to invest in Tata Singapore Airlines was also sent to him and he was confronted with a situation requiring him to execute a fait accompli. These investments were made just to satisfy Tata’s passion, he said.
Mistry said a recent investigation revealed fraudulent transactions worth Rs 22 crore involving non-existent parties in India and Singapore. Venkataramanan, who was on the board of AirAsia, did not encourage further study. It was only at the insistence of independent directors that the board decided to file a first information report with the police.
Tata group stocks have lost Rs 23,000 crore of market value or 2.7 per cent since Mistry's removal on Monday.
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