Tata Capital set for IPO

Tue, 04 February 2025
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Dev Chatterjee/Business Standard

The board of Tata Capital, the flagship financial services arm of Tata Sons, has approved changes to its memorandum of association and adopted a new set of articles of association (AoA) to align with the provisions of the Companies Act, 2013. 

The changes are part of the company's plan to go public later this year.

In a postal ballot notice issued on Thursday, January 30, the company said that as a non-banking financial company (NBFC), it is subject to regulations relating to capital adequacy, which determine the minimum amount of capital the company must hold as a percentage of its risk-weighted assets and the risk-adjusted value of off-balance sheet items.

As the company continues to grow its loan portfolio and asset base, it will require additional capital to continue meeting applicable capital adequacy ratios with respect to its business. Accordingly, the company may raise additional capital from time to time, including through rights issues, it said.

The company said its current shareholder base is around 29,000. 

To avoid a situation where its shareholder base increases further due to any corporate action that may lead to non-compliance with relevant provisions of the Companies Act (such as Sections 25 and 42), it proposes to include a clause in its AoA disallowing the right of renunciation by shareholders in any of its rights issues until the companys equity shares are listed on the stock exchange.

According to the Companies Act, 2013, Section 25 defines a 'deemed prospectus', saying that any document used to offer securities for public sale is considered a prospectus, with all associated legal implications.

Section 42, on the other hand, governs the process of 'private placement', allowing companies to raise capital by offering securities to a restricted group of investors without a public offering, thereby outlining the rules for private placements of shares.

Tata Capital clarified in the notice that the disallowance does not prohibit existing shareholders from applying for or subscribing to additional equity shares in rights issues, provided it is in accordance with applicable law and the terms of the issue. 

Therefore, the company has proposed adopting a new set of AoA.

Both Tata Capital and Tata Sons have been classified by the Reserve Bank of India as upper-layer NBFCs, making it mandatory for both companies to list by September this year. 

While Tata Sons prepaid its entire debt in 2023-2024 and sought an exemption from the RBI to remain private, Tata Capital is proceeding with its plan to list by September.

As of now, Tata Sons holds 92.83 per cent of Tata Capital, Tata group companies hold 2.46 per cent, International Finance Corporation holds 1.91 per cent, and the Employee Welfare Trust holds 1.16 per cent, with the remaining 1.64 per cent held by others.

After Tata Capital's merger with Tata Motors Finance (TMFL), TMF Holdings (a core investment company that owns TMFL) will hold a 4.7 per cent stake in the merged entity. The merger is awaiting regulatory approval.
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