Tata Sons end debt support for new businesses, focus on Independent financing
Tata Sons has directed the management of all group companies, especially new business such as Tata digital, Tata Electronics and Air India, to independently manage their debts and liabilities, discontinuing the practice of providing letters of comfort and cross-default clauses to lenders. All future capital allocation into these new ventures will be via equity investments and internal accruals, Tata Sons told lenders concerning the holding company's new financing approach. Tata Sons voluntarily surrendered its certificate of registration with RBI last year, after it repaid more than Rs. 20,000 crore in debt to remain unlisted.
Tata Sons has told lenders that in each segment-such as steel, power, chemicals or technology-the leading listed company will act as a holding entity, and not the holding company of the group.
Tata Sons is preparing these companies to be among its top businesses in a couple of years and the funding in these has been significant.
Lenders to the operating companies remain confident about extending credit. Their confidence is primarily driven by Tata Sons’ substantial ownership stakes in its subsidiaries, which serve as an implicit assurance of support. The holding company's financial stability and large equity interests in its subsidiaries provide reassurance to creditors, even without explicit guarantees. Most large banks allow Tata exposure at the maximum levels allowed by the regulator.
Another key advantage of Tata group is that it is not involved in the EPC (engineering, procurement and construction) business, meaning the parent company does not need to provide guarantees or letters of comfort for the execution of projects.
