Business Standard reported that TATA Group's holding company,TATA Sons,has pledged shares worth over INR 2,600 crore in three flagship group companies.
On December 24th,TATA Sons pledged 11 million shares in TATA Motors,10 million in TATA Steel and 15 million in TATA Consultancy Services with Central bank Financial Services Ltd.The value of the shares pledged has been calculated in line with their closing price on December 24th.
Market experts said that group companies often bank on TATA Sons for finance,either to fund an acquisition,or to pay debt.Since 2004,TATA Sons has invested INR 34,000 crore in various group companies,including unlisted ventures.
The current move might give TATA Sons INR 1,300 crore,as 50%finance is available on pledging.It is anticipated the money would be used to pay the debt of TATA Steel,or for an acquisition such as Orient Express by Indian Hotels.
Mr SP Tulsian independent equity advisor said that"TATA Steel's debt repayment could be the more likely reason.TATA Sons would infuse the money in TATA Steel through the preferential allotment route.It would be pre-mature to say the money was being raised for Orient Express acquisition."
As of June 30th,TATA Steel,the eighth largest steelmaker globally,had USD 9.3 billion in net debt.Most piled 6 years ago,when it had acquired the Anglo-Dutch steelmaker Corus for USD 12.1 billion,now TATA Steel Europe.TATA Steel had raised USD 875 million through foreign currency convertible alternative reference securities,or CARS,in 2007 to part fund Corus Plc's working capital needs.CARSs are similar to foreign currency convertible bonds,which can be converted into equity at maturity.If the share price of the company issuing the bonds falls,the investors can ask for repayment in cash.
TATA Sons is the unlisted holding company of the INR 0.46 million TATA Group.According to its November filing with the registrar of companies,its net profit for 2011-12 fell to INR 3,146 crore from INR 3,246 crore a year ago.Total revenue also dropped to INR 4,726 crore last financial year from INR 4,857 crore the year before.