Tata row to hit firms, says IiAS

Corporate governance firm Institutional Investor Advisory Services (IiAS) on Tuesday said that the ongoing feud between Tata Sons and Cyrus Mistry would have an operational impact on Tata group companies if independent directors and the Tata Sons nominees hold divergent views on their support to Mr Mistry.

“Tata group companies’ ease of access to finance and the cost of finance tend to be favourable — driven by the implicit understanding that these belong to the Tata group and that credit support from group companies will always be available, whether explicitly provided or not.

“But, there is now, a real possibility that boards of listed companies may choose to ignore Tata Sons. This is likely to make lenders nervous, and they may show restraint in extending any further credit until there is clarity regarding the evolving relationship between Tata Sons and the operating businesses,” IiAS said.

As on March 31, 2016, Tata group of companies had outstanding debt aggregating around Rs 2.5 lakh crore of which about 24 per cent is due within twelve months.

As a dominant shareholder with over 30 per cent holding in each of the companies, the Tata group can call an extraordinary general meeting and present a resolution to remove Mr Mistry as a director.

But, for the resolution to pass, it needs the support of at least 51 per cent of shareholder votes.

IiAS believes that the independent directors of the listed companies need to provide shareholders with guidance on how they should vote on a resolution to remove Mr Mistry as chairperson.