Tata to the Good Times

The abrupt sacking of Cyrus Mistry and Ratan Tata reaching out to the government begs the question: What is going on in the Tata group?

A few weeks before the salt-to-software-to steel conglomerate and also a gold standard in corporate governance, Tatas, scandalously imploded with its board strangely sacking its Chairman, Cyrus Mistry, Ratan Tata, who has now been appointed as the interim Chairman for some time, mysteriously sought a meeting with BJP’s President, Amit Shah. Interestingly, after the mutiny in the Tata board that saw the ouster of Cyrus Mistry, Tata again wrote to Prime Minister Narendra Modi to inform him about the change in the company.

It is not usual for private sector companies to reach out to the government till there is a manifest desire for its intervention. It is clear that Ratan Tata was rattled by how Cyrus Mistry went about putting many of his deals under a scanner. Cyrus Mistry’s letter to the board details at least one example of what can be considered as a criminal act. He informs of a forensic probe that reveals a fraudulent transaction of Rs. 22 crores with Singaporean and Indian companies. At the insistence of the board, a FIR was filed. Mistry’s letter also quietly let it be known to all those who would bother to care that most of the Air Asia transactions were handled by Ratan Tata himself. All this smacks for big trouble for Ratan Tata, who clearly wanted to contain damage to him and all his enterprises. Was Ratan Tata looking for protection from the government?

Expectedly, BJP Vice President, Subramanian Swamy, wants a probe in the Air Asia deal and its license to be canceled. An industry body of Airlines operators is also discussing with lawyers how to leverage Mistry’s explosive expose to their advantage. Although, the Tata group enjoys a stellar reputation, the Mistry letter shows that the Tata group, despite being valued as a $108 billion enterprise is really a house built on sand. It was due to this reason; that Mistry claims that a $18 billion worth of write down was staring at the company. All its investments, whether in steel or cars or hotels were showing a return on investment (ROI) far lower than industry rates.  Ratan Tata’s fondness for acquiring hotels in different parts of the world, as revealed during this messy fracas, was eating into the profitability of the company. Mistry’s letter also talks about the leakage from the company including some contracts going to Tata favorites.

Mistry’s well argued letter may irreparably hurt the image of both Ratan Tata as well as the group that had miraculously escaped unscathed after the messy exposure of what were infamously called the “ Radia Tapes”. In the stealthily made audio recording of Tata’s publicist, Neera Radia, , it was made clear that Ratan Tata’s hands  were dirty  in some of the Telecom deals at the time when the 2G licenses were being issued. Tata was accused of funding Unitech’s bid for spectrum acquisition. This went against the spectrum bidding rules.  This fact was brought out in 2G probe, but due to the extraordinary clout of the Tatas, Ratan Tata managed to wriggle out untarnished.

Although, the Tata group enjoys a stellar reputation, the Mistry letter shows that the Tata group, despite being valued as a $108 billion enterprise is really a house built on sand. It was due to this reason; that Mistry claims that a $18 billion worth of write down was staring at the company. All its investments, whether in steel or cars or hotels were showing a return on investment (ROI) far lower than industry rates.  Ratan Tata’s fondness for acquiring hotels in different parts of the world, as revealed during this messy fracas, was eating into the profitability of the company. Mistry’s letter also talks about the leakage from the company including some contracts going to Tata favorites

The exposure by Mistry, though, has far reaching implications. Expectedly, the statement that has been released by the Tata sons debunks their former Chairman’s allegations. His conduct and leakage of his letter is declared as “ unforgivable”, but that is unlikely to help their cause. What is really visible is that India’s most valuable brand that grew by leaps and bounds in the last 15 years or so would be at the mercy of the government inspectors and political bosses that would have their own ideas about what they should do with Tata sons. What needs to be watched is the fate not just of Air Asia, Vistara airlines where Tatas have invested, but also Corus Steel and the investment in the Jaguar car company. Corus Steel’s acquisition that was supported by Indian public sector banks has been struggling due to an indifferent market as well as the Chinese challenge. Surely, Indian banks are also putting pressure on Tata group to clean up its books before the March 2017 deadline announced by RBI. This is truly Tata to easy times for the group.