Tata Sons seeks to change pref shareholder rights

Move could provide voting rights to such holders in case dividend is not paid for 2 yrs

Tata Sons, the holding company of the Tata group, has sought shareholders’ approval to make a significant change in its articles of association to give voting rights to its preference shareholders in case the company defaults in payment of dividend for two years.

DEV CHATTERJEE writes

Tata Sons, the holding company of the Tata group, has sought shareholders’ approval to make a significant change in its articles of association — to give voting rights to its preference shareholders in case the company defaults in payment of dividend for two years.

The annual general meeting (AGM) notice to Tata Sons’ shareholders proposes to insert a new article 6 (D), which says in case dividend in respect of preference shares has not been paid for a period of two years or more, then such class of preference shareholders will have a right to vote on all the resolutions to be placed before the company. The AGM is scheduled to be held on September 21.

A Tata Sons spokesperson said this change was in sync and compliance with the requirement of the Companies Act, 2013.

According to shareholding data from the annual report, Tata Sons Chairman Emeritus Ratan Tata has emerged as the largest shareholder of preference shares (holding 35.6 per cent). In comparison, Two Tata Trusts — Jamshetji Tata Trust and Navajibai Ratan Tata Trust — reduced their exposure from 39.5 million preference shares a year ago to zero in March 2017.

Tata had invested ~105 crore last year to buying 1.05 million preference shares with a face value of ~1,000 each in Tata Sons.

Other top preference shareholders are Ambuja Cements founder and former chairman Narotam Sekhsaria and former Tata Sons director Noshir Soonawala.

Under the Companies Act, in the eventuality of a default by Tata Sons on the payment of preference dividend for two years or more, the voting rights of Ratan Tata would go up to 31.43 per cent from 0.83 per cent, as the preference and equity capital would be considered together. At the same time, the Mistry family’s stake with voting rights would fall to 2.8 per cent. Tata Sons controls assets worth ~5 lakh crore.

According to a corporate lawyer, a default by Tata Sons is remote as it can always sell shares in companies like Tata Consultancy Services, where it owns nearly 74 per cent to pay dividend on preference shares.

The net profit of Tata Sons declined by 72.4 per cent to ~824 crore in the financial year 2016-17 from previous year’s ~3,013 crore. This was mainly due to the company making provisions for damages of ~4,716 crore for NTT DoCoMo exercising its put option on its 26 per cent stake in Tata Teleservices. Tata Sons had to deposit ~8,000 crore ($1.2 billion) with the Delhi High Court to honour its commitment to buy back shares from DoCoMo.

The company’s revenues were up 23.2 per cent to ~9,984 crore from ~8,104 crore, boosted by “other income” of ~2,169 crore for sale of its 24 per cent stake in its insurance venture, Tata AIA Insurance.

Tata Teleservices’ financial health is in a precarious situation (as it posted a negative networth of ~12,000 crore on ~29,000 crore of debt), and could impact Tata Sons’ financials adversely if it decides to exit telecom.