Winning Bizness Desk

Mumbai.Tata Sons plans merger to avoid listing, reviving its 80-year-old operating model and seeking exemption from RBI rules

Tata Sons is exploring a restructuring plan under which Tata Electronics and Tata Consulting Engineers could be merged with the group’s holding company, allowing it to avoid a mandatory stock market listing.

The proposal, backed by Tata Trusts chairman Noel Tata, would change the nature of Tata Sons from a financial investment company into an entity that also directly carries out manufacturing and services businesses.

The move would potentially take Tata Sons outside the Reserve Bank of India’s stricter regulations for upper-layer non-banking financial companies (NBFCs), removing the immediate requirement for a stock market listing.

Tata Sons could return to its older business structure

The proposed restructuring would mark a return to the model followed by Tata Sons for much of its history. For nearly 80 years of its roughly 100-year journey, Tata Sons itself operated businesses instead of functioning mainly as a holding and investment company.

According to F N Subedar, adviser to Tata Trusts and a former company secretary of Tata Sons, the proposal is therefore not a new experiment but a return to the group’s earlier structure.

Until Tata Consultancy Services (TCS) was separated in 2004, its business was also operated under Tata Sons. After the demerger of TCS, Tata Sons increasingly became a core investment company.

RBI rules put pressure on Tata Sons listing

RBI rules for upper-layer NBFCs are at the centre of the issue. A company can fall under the financial company framework when more than 50% of its assets and income are linked to financial activities such as lending and investments. For classification as a Core Investment Company (CIC), at least 90% of its assets must also be invested in group companies.

Companies falling under the relevant upper-layer category are required to be listed on stock exchanges. Tata Sons, with an asset base of around Rs 2 lakh crore, currently meets the conditions that have brought it under RBI scrutiny.

Merger would increase Tata Sons operating revenue

The proposed merger would bring the operating businesses of Tata Electronics and Tata Consulting Engineers directly into Tata Sons. Based on the financial year ended March 31, 2026, the combined entity is estimated to have operating revenue of around Rs 1.05 lakh crore. That would be substantially higher than the Rs 40,072 crore income generated from financial assets.

The numbers would change the revenue profile of Tata Sons:

• Operating revenue: around Rs 1.05 lakh crore
• Income from financial assets: Rs 40,072 crore
• Operating revenue share: around 64%
• Key threshold under the rules: 50%

With operating income accounting for more than half of total income, Tata Sons would no longer fit the financial activity test in the same way.

Tata group faces differences over listing decision

The restructuring plan does not have unanimous support within the Tata group. Only 11 days before the merger proposal emerged, the Tata Sons board had indicated that the company would proceed with a stock market listing to comply with RBI regulations.

Noel Tata, however, is opposed to Tata Sons becoming a listed company. Two vice-chairmen of Tata Trusts are understood to support the listing. The difference in positions makes the proposed restructuring an important decision for Tata Sons and its principal shareholders.

SP Group could lose route to monetise stake

The proposed merger also has implications for the Shapoorji Pallonji (SP) Group, which owns an 18.37% stake in Tata Sons. A Tata Sons IPO would have provided the SP Group an opportunity to sell part of its holding in the market and raise funds.

If the merger goes ahead and Tata Sons remains unlisted, that route would no longer be available through a public offering. The SP Group would therefore continue holding its stake without the immediate liquidity opportunity that a listed Tata Sons could have provided.

Several approvals will be required before merger

The restructuring cannot be implemented without regulatory and shareholder approvals.

The key steps include:

• RBI no-objection certificate would be required first.
• The proposal would then have to go before the National Company Law Tribunal.
• Shareholders would need to approve the scheme.
• At least 75% shareholder support would be required for the proposal to pass.

These approvals will determine whether the proposed restructuring can move forward.

Experts question whether merger offers lasting solution

Binoy Parikh, partner at Catalyst Advisors, has described the proposal as a “toggle” rather than a permanent solution. The concern is linked to the future structure of the merged businesses.

If Tata Sons later separates Tata Electronics or Tata Consulting Engineers again, or brings an outside investor into these businesses, its operating revenue could fall below the required level. That could once again change its regulatory classification and bring the listing requirement back into focus.

CIC structure explains why Tata Sons wants private status

A Core Investment Company is an NBFC whose assets are largely invested in shares, bonds or loans of companies within the same group. Under the upper-layer NBFC framework, companies in the category are required to be listed.

For Tata Sons, remaining private would preserve its existing ownership structure and allow Tata Trusts and other shareholders to retain control without the additional obligations that come with a listed company.

The proposed merger is aimed at changing Tata Sons’ business profile so that its operating activities form the larger part of its income, rather than financial investments.

If approved, the restructuring would take Tata Sons back towards a business model it followed for most of its history while addressing the regulatory issue created by its current investment-company structure.