Exchanges seek clarification from Tata on Mistry’s letter
Tata Group faces ‘US$18 billion in write-downs’, as Indian regulator looks into alleged financial lapses, possible corporate governance breaches
India’s leading stock exchanges are seeking clarification from listed companies under Tata Group over purported disclosure by ousted chairman Cyrus Mistry of US$18 billion worth of possible write-downs in the latest turn of events at the conglomerate, Press Trust of India reported.
The Bombay Stock Exchange (BSE) and the National Stock Exchanges of India (NSE) on Wednesday are asking these companies, including Tata Motors, Tata Steel, Indian Hotels, Tata Teleservices and Tata Power, to provide full details on these issues.
Market regulator Securities and Exchange Board of India (Sebi) is also keeping a close tab on the case and will look into any possible breach of corporate governance and listing regulations at the listed companies of the US$100 billion Tata Group.
“We are taking note of each and every development and will act immediately if there is any hint of possible violation of corporate governance and listing norms or any other regulation under our jurisdiction,” a senior official at Sebi said.
The BSE and NSE notices followed reports that Mistry, who was ousted as chairman of the group’s main holding company Tata Sons on October 24, disclosed possible write-downs to the tune of US$18 billion faced by the conglomerate. Patriarch Ratan Tata, 78, took over as interim chairman.
The debts of the Tata Group – whose interests range from salt pans, to energy, vehicle manufacturing, hotels, aviation and telecoms – currently run close to US$30 billion.
In the notices, the exchanges have asked the companies to provide “clarification or confirmation on the news item in detail”.
The companies have also been asked to explain “whether such event/negotiations/article stated in published news were taking place?
“If so, you are advised to provide the said information along with the sequence of events in chronological order and the material impact of this article on the company,” the exchanges said in the notices.
The companies have also been asked about “any information that has not been announced to the exchanges” as required under listing regulations.
Sebi was also looking into the alleged disclosure made in a purported letter written by Mistry to the board members of Tata Sons, including matters of financial and other irregularities as well as lapses on the corporate governance front, sources said.
The exchanges are also keeping a close watch on the price movement and trading activities of over two dozen listed companies of the Tata Group, which have seen an erosion in value in last two trading sessions after the surprise ousting of Mistry, 48, after less than four years of being at the helm of Tata Sons.
The price movement and trading volumes in the days leading up to the surprise announcement will also be investigated.
In an explosive confidential five-page letter emailed to Tata Sons board members that he sent a day after his shock removal, Mistry warned that the salt-to-software giant may face US$18 billion in possible write-downs because of five unprofitable businesses that he inherited.
Mistry said he inherited a debt-laden enterprise saddled with losses and singled out Indian Hotels, the passenger-vehicle operations of Tata Motors, the European operations of Tata Steel and part of the group’s power unit and its telecommunications subsidiary as “legacy hot spots”.
In the letter, Mistry contended that he was pushed into a position of “lame duck” chairman and changes in the decision-making process created alternate power centres within Tata Group.
Flagging “ethical concerns” in Tata group’s aviation joint venture with Air Asia, he alleged in the letter that forensic investigation revealed fraudulent transactions of US$3.29 million involving non-existent entities in India and Singapore.
He also alleged that due to interim chairman Ratan Tata’s passion for aviation, Tata Sons board increased capital infusion in the aviation sector at multiple levels of the initial commitment.
“A recent forensic investigation revealed fraudulent transactions of 220 million rupees [US$3.29 million] involving non-existent parties in India and Singapore,” Mistry said in the letter.
Mistry went on to allege that “executive trustee Mr [Ramachandran] Venkataraman, who is on the board of Air Asia and also a shareholder in the company, considered these transactions as non-material and did not encourage further study.”
It was only at the insistence of the independent directors, one of whom immediately resigned, that the board decided to belatedly file a first information report, Mistry said in the letter.
He said Tata Motors had been unable to shut down the loss-making small car Nano project due to “emotional reasons” and doing so would also stop the supply of “gliders” to an entity that makes electric cars in which Ratan Tata has a stake.