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Why the Tata-Mistry row is making investors nervous

07 November, 2016

The public fight that has erupted since Cyrus Mistry was sacked as the chairman of Tata Sons Ltd on 24 October seems to be making local and foreign investors, who had been betting on India’s largest conglomerate, nervous. 

A report in The Economic Times on Monday said that a group of foreign institutional investors, who together own more than 10% of Tata Motors Ltd, have expressed concerns to the company’s board that the group’s holding company Tata Sons may be given preferential access to strategic information before the automaker’s investors. 

Although the report does not name which investors have raised these concerns, it does name UK’s Legal and General, US-based Oppenheimer Fund, Sweden-based Nordea Asset Management, Abu Dhabi Investment Authority, Government of Singapore Investment Corp and Monetary Authority of Singapore as being Tata Motors’ big overseas investors.  

These concerns may have also forced the Tata group to postpone an investor meeting scheduled for 18 November, another report in The Economic Times said. The investor meeting was to present the group’s future strategy to anywhere between 100 and 150 investors, and will not be held next quarter.

Just last week, VCCircle noted in a report how government-owned insurance company Life Insurance Corp of India, which owns shares in 11 Tata group companies, including Tata Motors, had lost nearly Rs 2,500 crore since Mistry was removed. This, even as Mistry continues to be chairman on the board of Tata Motors, and several other listed companies. 

However, not all off Tata’s business partners seem to be unduly worried by the imbroglio at Bombay House, the group’s headquarters in Mumbai. Reuters said in a report on Sunday that UK Prime Minister Theresa May, who is on a two-day visit to India, will not meet Tata Steel executives, even as talks about the loss-making steel major’s future ownership are still on. In March, Tata Steel had put its UK assets on the block, after losses owing to falling commodity prices and cheaper Chinese imports.

Like some investors, independent directors on the boards of Tata companies too seem to be a worried lot. A report in Mint newspaper said that although Tata Group interim chairman Ratan Tata had, since Mistry’s sacking, reached out to employees and investors, it had not contacted independent directors on the boards of various group companies. 

This, even as independent directors on the board of Indian Hotels—which operates the Taj group of hotels—have voiced support for Mistry. These include influential names like Nadir Godrej, Deepak Parekh, Keki Dadiseth, Ireena Vittal, Gautam Banerjee and Vibha Paul Rishi. 

At least two experts who spoke to VCCircle offered differing views on whether the Tata group will be able to easily evict Mistry from the boards of the companies he heads. JN Gupta, a former executive director at the Securities and Exchange Board of India, said that there is nothing in law to stop the Tata Trusts, collectively the largest shareholders in the Tata group to remove Mistry. But Sandeep Parekh, founder of Finsec Law Advisors, said that it could be a tough call. “There is a related-party restriction, which applies for directors who get money beyond their regular pay,” he said. He, however, added that it will have to be determined whether Mistry was actually getting paid beyond his regular pay.

Both Parekh and Gupta said that if the Tata group wants to remove Mistry as the chairman from the boards of the listed companies, each company will have to do so separately. “A chairman can be removed by the board, but as a director, the shareholders will have to remove him,” Parekh said.

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Why the Tata-Mistry row is making investors nervous

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