MUMBAI: A price quoted for an asset has no value unless there is both a willing buyer and a seller at the said price. When Shapoorji Pallonji Group said last September it was willing to sell its 18.4% stake in Tata Sons Ltd, it valued the stake at Rs1.8 trillion. The Tata Group, on the other hand, the only likely buyer for the stake, said in court the value of the stake is not more than Rs80,000 crore.
After the Supreme Court judgment in favour of the Tata Group, this huge gap of Rs1 trillion will now most likely become far greater. With the top court ruling that SP group as a minority shareholder was not oppressed, there was no case for it to mediate on the terms of a divorce. At best, the SP Group can pledge its stake and raise funds, some reports after the judgment suggest.
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But with the liquidity of the underlying asset in question, that would be a non-ideal outcome in any case. Lenders are likely to apply a huge haircut before disbursing any funds.
The main solution, as far as liquidating its stake goes, would be to settle with the Tata Group. On the back of the court’s verdict, it’s unlikely it will offer anything more than the Rs80,000 crore value it alluded to in court proceedings.
This will only increase the gap between the SP Group’s view of what its stake is worth and the actual realizable value. Since its pronouncement last September that Tata Sons is worth Rs9.7 trillion and that its own stake is worth Rs1.8 trillion, the value of listed Tata Group firms have risen substantially.
In September 2020, the value of the Tata Son’s stakes in listed firms stood at Rs7.8 trillion, with the value of unlisted firms and the Tata brand making up for the balance Rs1.9 trillion in SP Group’s books.
Based on today’s prices, the value of the listed holdings alone are worth around Rs9.9 trillion. The value of SP Group’s stake, therefore, stands at Rs1.8 trillion on the strength of the listed holdings alone.
Of course, none of this will matter to the Tata group, which will argue that after applying holding company discounts and accounting for debt etc., the value of the stake is much lower. It all boils down to the relation between price and liquidity. With only one potential buyer in the market, the SP Group may need to settle for a huge liquidity discount. And as pointed earlier in these pages, its main hope that the discount is somewhat reasonable is to bank on the Tata group living up to its famed values and ethics. This is an irony of sorts, given that the legal battle has also been about challenging this traditionally held view of the Tata Group.
