Tata Sons will be a big beneficiary of Tata Consultancy Services’ entry into the $100-billion market capitalisation club. Not only does it allow the holding firm to unlock benefits in terms of valuation if it decides in favour of diluting even a small portion of the 71.89 per cent it holds in its flagship firm, it also improves the company's standing when it goes for overseas borrowing. The soaring valuations of the cash-cow also strengthen the risk appetite of Tata Sons to grow the business.
Chandresh Ruparel, managing director at investment banking firm Rothschild India, said the strong valuation of TCS is an opportunity for Tata Sons to meet its other financial commitment. “TCS is a currency for Tata Sons and they still hold enough to dip into it repay the debt and correct the capital structure or increase stake in other group companies.
If the valuation is right, they might as well do it,” said Ruparel.
But Tata Group insiders said even as encashing a small portion of Tata Sons’ holding in TCS can take care of group’s debt and equity, Tata Sons is not considering that as an option anytime soon. It sold 28.27 million shares or 1.48 per cent stake in March.
“Over the last 15 months since N Chandrasekaran has taken charge, the fortunes of the group have changed for better,” said one of the officials cited pointing out that while Tata Sons may still go ahead with the overseas borrowing, the costs may be lower. “It’s a dream sequence for any company,” said another official adding that Tata Sons doesn’t plan to encash its holding in TCS further.
Some of the immediate financial needs that face the company include repaying the debt of Tata Teleservices before it is merged with Bharti Airtel. In October last year, the company sold its bleeding mobile telephony business to Bharti in no-cash, no-debt deal while retaining the optic fibre business.
According to media reports, of the Rs 210 billion rupee-denominated debt Tata Teleservices had, it repaid Rs 170 billion to a consortium of bankers led by State Bank of India in January. It still has to repay the remainder of the Rs 60 billion before concluding the deal with Bharti.
Tata Sons also has to fund Tata Steels’ purchase of Bhushan Steel. Tata Steel has offered Rs 352 billion in cash and conversion of the remaining debt of about Rs270 billion into equity to take over Bhushan Steel. Tata Sons holds 31.64 per cent in Tata Steel.
The holding firm is seeking an offshore syndicated loan, as it seeks to pay down expensive debt at telecommunications units, Bloomberg reported on March 9. It has mandated lenders for a $1.5 billion six-year loan, it reported, adding that it would use the proceeds to repay the debt of units Tata Teleservices and Tata Teleservices Maharashtra.
On March 13, 2018, Tata Sons sold 1.48 per cent in Asia’s largest software developer firm bringing down its stake from 73.52 per cent at the end of December quarter to 71.89 per cent. A jump in its market capitalisation has jacked up the value of Tata Sons investment even as its overall stake has whittled down. At current market price (as on 24 April) the value of Tata Sons’ investment in the company stands at Rs 4659 billion at the end of March, higher than the Rs 3955 billion (calculated as per the prevalent market price) at the end of December quarter, according to the latest shareholding data of TCS.
Others agreed. "The timing of TCS's couldn’t have been better. It would much easier for them to raise money as their standing goes up in the debt market," said Arun Kejriwal, director at KRIS Capital. Even if Tata Sons decides to sell 5 per cent of their holding, it can serve company's debt and equity needs for the next two years, he added.
In January this year, rating agency CRISIL assigned AAA/Stable rating to the Rs50 billion non-convertible debentures (NCD) of Tata Sons while reaffirming the ratings on its existing debt instruments and bank facilities at CRISIL AAA/FAAA/Stable/CRISIL A1+'. It attributed company’s financial flexibility to its ability to raise additional funds by sale or pledge of its large portfolio of investments, mainly equity shares in TCS.