Tata Chemicals tumbles 10% on Tata Sons IPO uncertainty

11 Mar 2024 , 12:15 PM

Shares of Tata Chemicals fell more than 10% on March 11 as a result of rumors that the IPO of Tata Sons, which was anticipated to increase the company’s value, would not be happening anytime soon.

Over the past week, as news of the parent company of multiple Tata group enterprises going public gathered traction, Tata Chemicals’ stock surged 36%. According to reports, the company is reportedly looking into a number of options to comply with RBI regulations.

Tata Sons is categorized as a “upper layer” NBFC, meaning that it must adhere to a stringent regulatory framework and list on the public market within three years of being notified. The company is registered with the RBI as a “core investment company (CIC)”.

Tata Sons must list on exchanges by September 2025, according to a notification the RBI sent out in September 2023 to that effect.

However, sources informed that it is doubtful that the firm will go public. To maintain compliance, Tata Sons is thinking at a number of options, including possibly separating Tata Capital.

According to RBI regulations, a “core investment company” is exempt from classification as a Credit Information Company or a “upper layer” NBFC if its assets are less than Rs 100 crore and it does not raise public funds. It is also not required to pursue a public listing.

A component of the compliance strategy is the evaluation of group debt reduction initiatives. Tata Chemicals, which is believed to be the largest beneficiary of the highly anticipated public issue, may miss out on the potential value unlocking if the Tata Sons IPO does not materialize.

Tata Sons is owned by four Tata Group companies: Tata Motors, Tata Chemicals, Tata Power, and Indian Hotels, according to the Spark Capital note that was published last week.

However, because Tata Chemicals owns a 3% ownership investment in Tata Sons, that is the only practical way to be exposed to this potentially valuable possibility.

Spark calculated the market capitalization of Tata Sons to be around Rs 8 lakh crore, omitting holdco discounts and optionalities. It further stated that based on that computation, the value of Tata Chemicals’ equity holding in Tata Sons would reach up to Rs 19,850 crore.

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