Tata Sons Listing and Leadership Transition Won't Immediately Impact Credit Ratings: S&P Global

A potential listing of Tata Sons and the leadership transition at the Tata Group are unlikely to have an immediate impact on the credit ratings of group entities, but could raise questions about the continuity of strategy, financial policy and group support over the longer term, S&P Global Ratings said. “Any changes in the Tata Group’s financial policies are likely to be gradual. A potential listing of holding company Tata Sons and leadership transition at the group would therefore have no immediate impact on our ratings on group entities,” the ratings agency said. On September 11, the Reserve Bank of India wrote to Tata Sons, rejecting its application to surrender its Certificate of Registration as a core investment company. Following that, the Tata Sons board, at a meeting on September 17, resolved to undertake the required steps to comply with the regulations that apply to upper layer NBFCs . It added that the salt to semiconductor group has a conservative management approach. “We view the rated entities as run by independent professional, management teams, although Tata Sons does influence their strategy,” S&P Global said. S&P currently rates Tata Steel, Tata Motors, Tata Power, Tata Power Renewable Energy, Tata Capital and Jaguar Land Rover Automotive at investment grade, with Tata Motors Passenger Vehicles and JLR carrying negative outlooks. The agency considers the rated companies to be strategically important to Tata Sons, resulting in up to three notches of support. “That said, the leadership transition or changes in the group structure or stakeholder priorities may raise questions around the continuity of the group’s strategy and financial policy, and the likelihood of group support over the longer term. This is particularly relevant because rated companies such as Tata Steel , Tata Power , and Tata Capital have significant growth plans, and JLR is going through a business transition,” S&P Global said. It added that a routine listing of Tata Sons in its current form would be neutral for Tata group companies. However, greater public ownership could increase scrutiny of investment decisions, capital allocation and support for weaker group entities. This could place greater emphasis on financial returns, capital discipline, shareholder distributions, leverage and accountability for strategic investments, the agency said. At the same time, given the size of a potential Tata Sons IPO , it would take several years for public shareholders to become significant, the agency said. The agency said its assessment of group support currently relies on Tata Sons being a single key controlling entity with ownership across multiple diversified companies. Any restructuring that makes a clear controlling entity less obvious or weakens Tata Sons’ credit profile could affect its assessment of the group’s credit quality and the ratings support available to individual companies.