The Tata group, India's second-largest private conglomerate with 98 companies, plans to increase the promoter stake in half-a-dozen globally-active subsidiaries by three to four per cent through creeping acquisitions and preferential bond and warrant issues in the current financial year to defend them from predatory attacks.
The companies in the list include those that have made significant global acquisitions and are the group's most valued companies -- Tata Steel (which acquired Corus in 2007), Tata Chemicals (General Chemical Industrial Products earlier this year), Tata Motors (Jaguar and Land Rover early this year), Tata Power Company (30 per cent in Bumi Resources in 2007) and Tata Tea (33 per cent in Joekels Tea and JEMCA in 2006).
The group has periodically made statements about raising its stakes in key companies but had not outlined specific targets so far.
At present, barring Tata Tea, the promoter holding in the globally active companies is below 35 per cent (see table). The promoters have limited themselves to 3 to 4 per cent this year in order to stay within the creeping acquisition limit of 5 per cent.
Under Securities and Exchange Board of India guidelines, however, promoters are not allowed to increase their stake beyond 55 per cent through creeping acquisition and preferential allotment.
"Though there is no hostile acquisition threat for these companies as of now, the group wants to make it clear that the group companies are not vulnerable to any predatory intentions," said sources close to the developments.
At current market capitalisation, acquiring 3 to 4 per cent in these companies will entail investments between Rs 4,000 crore and Rs 5,400 crore. Current market conditions are also seen conducive for buying back shares at a lower price.
When contacted, the group spokesperson said, "Tata Sons does not wish to comment on such speculation."
Tata Sons is the main company through which the promoters hold shares in the group companies but it was not clear how the stake will be raised. One option is to let group companies consolidate their position though there will be significant cross-holdings.
Last week, Tata Power announced that it will raise over Rs 1,400 crore through issue of shares to its promoter Tata Sons upon conversion of 10.3 million warrants. Last year, the board of Tata Power had approved the allotment of 9.89 million equity shares and 10.3 million warrants to Tata Sons.
In 2006, Tata Sons chairman Ratan Tata had said that the promoters will raise their stake in Tata Steel by around 7 per cent through a preferential issue of shares. The move came soon after steel tycoon LN Mittal launched a hostile takeover and later acquired French steel giant Arcelor.
