Tata Trusts moots two mergers to avoid Tata Sons listing

Mumbai: Tata Trusts has proposed merging two operating companies into Tata Sons Pvt. Ltd., in a fresh bid to take the group’s holding company out of the core investment company (CIC) category, a move it believes could help the company comply with the Reserve Bank of India’s (RBI) direction without having to list it on the stock exchanges.

On Monday, Tata Trusts, which owns 65.9% of Tata Sons, proposed to merge Tata Electronics Systems Solutions Pvt. Ltd. (TESS) and Tata Consulting Engineers (TCE) with Tata Sons. The merger will help the company skirt the tags of both a CIC and a non-banking financial company (NBFC), the philanthropic entities said.

This is because the combined company will have net assets of ₹2,00,158 crore, with investments in group firms totalling ₹1,77,120 crore, which is less than 90% of the total net assets. Moreover, the combined company will have operating revenues of ₹105,043 crore, far more than its income from of ₹40,072 crore from financial assets. Tata Sons had posted a standalone revenue of ₹42,366.5 crore and profit of ₹31,961 crore for the year ended March 2026.

The RBI classifies companies with more than 50% of their income from financial assets as NBFCs. Further, it defines a CIC as an NBFC that has at least 90% of its assets invested in shares, bonds, or loans within group firms.

For context, TESS is an electronics manufacturing subsidiary of Tata Electronics that manufactures iPhones in Karnataka. The unit was acquired from Taiwan’s Wistron in 2024. TCE is a privately-held engineering and project management consultancy firm handling large infrastructure projects.

The restructuring proposal offers Tata Trusts a new route to keep Tata Sons private after the RBI had on 11 September rejected the company’s earlier application to surrender its CIC registration.

Tata Trusts on Monday sent this restructuring proposal to Tata Sons chairman N. Chandrasekaran and to the RBI.

“It is our expectation that once this step is sort of taken to the RBI, and it gets found to be satisfactory, we will neither be an NFC nor a CIC. And therefore, none of these guidelines will apply, and we will be an investment and operating company like several other conglomerates operate in India," said Farokh Subedar, 71, a group veteran who has worked with four Tata Sons chairmen and is now an advisor to Tata Trusts.

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The group veteran was briefing the media at the Tata Trusts office in one of Mumbai's oldest business districts of Cuffe Parade.

“The Tata Sons board has already passed a resolution to remain unlisted. They have not reversed that resolution," Subedar said.

In the summer of 2024, the Tata Sons board had passed a unanimous resolution to keep the company private.

If the restructuring passes muster with both the Tata Sons board and the regulator, it could fundamentally alter the regulatory status of the holding company, and remove the trigger for a mandatory listing.

Tata Trusts calls it a return of the company to its original state, being an operating entity and not just a holding company.

“TSPL (Tata Sons) has, for almost 80 years out of its 100-year existence, always had operating businesses and operating revenues,” Tata Trusts said in its press release, highlighting that Tata Consultancy Services Ltd (TCS) was a business division of Tata Sons until 2004 before being demerged.

A sound suggestion, but challenges remain.

Two practical challenges still confront the philanthropic entity as it jostles for control with the Tata Sons board that has indicated its willingness to go public.

First, the Tata Sons board must approve the Trusts' proposal. The proposal comes less than a fortnight after the Tata Sons board had on 17 September decided to comply with RBI’s regulations, despite Tata Trusts chairman Noel Tata reiterating the Trusts’ position that the holding firm should remain private. The meeting had also exposed differences between Tata Trusts and the board over Chandra’s reappointment as Tata Sons chairman for another term beyond February.

Second, even if the board of Tata Sons agrees to the majority shareholder’s plan, it is unclear whether the RBI will approve removing the group’s holding company from the upper-layer NBFC category, for which a public listing is mandatory.

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How viable is a Tata Sons restructuring Legal experts say the proposal complies with the RBI's existing guidelines.

"In sophisticated conglomerates, transitioning from a pure holding structure into an operating-cum-investment entity is a legally recognised route to reshape regulatory classification, though it will naturally be examined closely by the central bank under its scale-based governance principles," said Ankita Singh, managing partner at Sarvaank Associates, a boutique law firm.

However, "the more difficult question is how Tata Trusts will now persuade Tata Sons and the other entities that would form part of such a restructuring to accept the proposal, particularly when the Trusts and the Tata Sons board are already divided over listing and leadership," said Srinath Sridharan, a Mumbai-based strategic corporate advisor and author of Family and Dhanda.

"Ultimately, the proposal’s success will depend on whether Tata Trusts has the institutional heft, and full board support to build momentum around it and take it through the governance and regulatory processes ahead," he said.

The development had prompted comments from corporate India, investors, and politicians on developments at the country’s largest conglomerate by revenue.

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So far, the RBI, which had first labelled Tata Sons as an upper layer NBFC in September 2022 and asked the company to become public by September 2025, has not set a deadline for it to follow this order.

In its 11 September letter to Tata Sons chief financial officer Saurabh Agarwal, the regulator had said: “After considering the above and examining all the relevant factors, we advise that your request for voluntary surrender of CoR (certificate of registration) for being classified as unregistered CIC (core investment company) cannot be acceded to”. The banking regulator advised Tata Sons to immediately take the necessary actions to ensure full compliance with all the guidelines and instructions applicable to an upper layer NBFC.