Tata Sons raising funds to invest in new businesses

Tata Sons, the holding company of the Tata group, is on a fund-raising spree for new businesses such as aviation and infrastructure, investment in rights issues of group companies and debt reduction.

Since January, the company has raised Rs 1,915 crore (Rs 19.15 billion) through non-convertible debentures, say bankers.

Through the next two years, the company will need an additional Rs 2,000 crore (Rs 20 billion) for its wireless telephony operator Tata Teleservices and direct-to-home operator Tata Sky Ltd, both loss-making companies. In January, Tata Sons had invested Rs 2,400 crore (Rs 24 billion) in Tata Teleservices, used by the telco to repay debt.

Tata Sons has been investing in electronic retail stores Croma; now, however, this company won’t require additional fund infusion.

In January and March, Tata Sons had raised funds through three-, five- and 10-year bonds, at an average rate of 9.8 per cent. It had raised Rs 630 crore in December 2013 and Rs 890 crore (Rs 8.9 billion) in May 2013, through the same route.

Bankers say Tata Sons will need Rs 660 crore (Rs 6.6 billion) to retain 33 per cent stake in Tata Power and Rs 330 crore (Rs 3.3 billion) to invest in the Indian Hotels rights issue. The Tata group holds 37.5 per cent stake in Indian Hotels, set to raise Rs 1,000 crore (Rs 10 billion) via the rights issue.

The Tata group has also announced it will invest in two airlines in India, in partnership with Air Asia and Singapore Airlines.

A Tata spokesperson declined to comment on Tata Sons’ plans to raise funds.

As the group’s new businesses have long gestation, Tata Sons will fund these in the initial stages.

For 2012-13, the group had a net profit of Rs 3,710 crore (Rs 37.10 billion) and revenue of Rs 5,750 crore (Rs 57.50 billion), against a profit after tax of Rs 3,150 crore (Rs 31.50 billion) and revenue of Rs 4,730 crore (Rs 47.30 billion) for 2011-12. The company’s primary revenue stream is the dividend paid by companies.

Group companies, with operations in 100 countries, employ 540,000. While Tata Steel, Tata Power, Indian Hotels and the domestic operations of Tata Motors are under pressure, partly due to a slowdown in India and Europe, Tata Consultancy Services remains its crown jewel.

Half the group’s revenue is accounted for by companies and businesses that earn below-par shareholder returns.

Of all its businesses, telecom is turning out the biggest drag. Tata Sons has invested Rs 26,000 crore (Rs 260 billion) in Tata Teleservices, but returns from this segment have been negative.

For the first nine months of 2013-14, Tata Teleservices reported a net loss of Rs 3,485 crore (Rs 34.85 billion) and total operating income of Rs 7,895 crore (Rs 78.95 billion), against a net loss of Rs 3,794 crore (Rs 37.94 billion) and operating income of Rs 8,190 crore (Rs 81.90 billion) for the corresponding period of 2012-13. Owing to the losses, Tata Teleservices’ net worth fell by Rs 1,860 crore (Rs 18.60 billion) in 2012-13

Now, the Tata group is seeking to exit the wireless telephony business and is scouting for equity partners in India.