Tata Sons to cut debt, step up investments with TCS dividend

With a ~12,166-crore dividend bonanza from its subsidiary, Tata Consultancy Services, Tata group holding company Tata Sons’ top priority would be to reduce debt and make more investments in the infrastructure and aviation businesses.

The company has to make debt repayments of ~3,333 crore in the year ending March 2020 (FY20) and, of this, Tata Sons has already repaid ~520 crore till July 31, a source close to the development said.

“The idea is to reduce debt and, at the same time, make investments wherever necessary, like in the aviation and infrastructure businesses,” said the source. The additional cash from TCS will come in handy if the group decides to participate in the government’s disinvestment plan, including in Air India, provided the opportunity is good.

A spokesperson declined to comment on how Tata Sons would use the dividend from TCS or how it will participate in the disinvestment exercise.

The focus on cutting debt is because of the fact that Tata Sons’ gross debt shot up by 14.5 per cent to ~31,363 crore in the year ended March 2019. The holding company’s cash and cash equivalents declined by 59 per cent in FY19 to ~3,776 crore.

One of the reasons for the drop in Tata Sons’ cash reserves was the write-off on investments in its now-closed wireless telephone business. During FY18 and FY19, on a cumulative basis, Tata Sons wrote off investments of about ~43,400 crore in Tata Teleservices (TTSL), which was funded by TCS’ dividend boosters and sale of TCS shares in March 2018. But the TTSL write-off resulted in an increase in net debt as of July to ~30,488 crore from ~27,870 crore in March.

Bankers said the incremental support towards group companies was not likely to be sizeable, which would help the group’s deleveraging plan. “The group has already invested ~2,500 crore in the financial services business in FY19, and the business will not require any additional equity support in FY20. But the aviation business may require additional funds as both airlines are in growth mode,” said the source.

Tata Sons is planning to invest ~580 crore more in Tata Realty and Infrastructure by March 2020, so that it can reduce debt and invest in new projects. This investment will be in addition to the ~1,200 crore already pumped in the loss-making subsidiary till June. In FY19, Tata Sons also bought back its non-convertible debentures worth ~7,000 crore from insurance companies like the Life Insurance Corporation of India as the insurance regulator barred investments by insurers in a private limited company.