S&P Global Ratings says a potential listing is unlikely to immediately affect the credit ratings of Tata group companies, but changes in ownership, leadership or financial policy could influence group support assessments over time
A potential initial public offering (IPO) of Tata Sons is unlikely to have an immediate impact on the credit ratings of Tata group companies, but changes in the holding company’s ownership structure could influence S&P Global Ratings’ assessment of group support over the longer term, the ratings agency said in a report on Tuesday.
S&P Global Ratings said any changes in the Tata group’s financial policies are likely to be gradual. It added that a potential listing of Tata Sons and the group’s leadership transition would therefore have no immediate impact on its ratings of Tata entities.
S&P currently rates Tata Steel Ltd., Tata Motors Ltd., Tata Motors Passenger Vehicles Ltd., Tata Power Co. Ltd., Tata Power Renewable Energy Ltd., Tata Capital Ltd. and Jaguar Land Rover Automotive PLC. The agency considers these companies strategically important to Tata Sons, resulting in up to three notches of group support.
According to S&P, the credit profiles of these rated companies have improved over the past few years, supported by the Tata group’s relatively conservative financial policy.
However, the agency said a leadership transition or changes in the group’s structure and stakeholder priorities could raise questions over the continuity of its strategy and financial policy, as well as the likelihood of group support over the longer term.
The issue could become more relevant as several Tata companies pursue significant growth plans. Tata Steel, Tata Power and Tata Capital are expanding, while Jaguar Land Rover is undergoing a business transition, S&P said.
More from BusinessA routine listing of Tata Sons in its current form would be neutral for Tata group companies, according to the agency. However, greater public ownership could increase scrutiny of investment decisions, capital allocation and the support extended to weaker group entities.
S&P said such scrutiny could put greater focus on financial returns, capital discipline, shareholder distributions, leverage and accountability for strategic investments.
The agency also noted that it could take several years for public shareholders to become significant given the size of a potential Tata Sons IPO. As a result, any changes to the group’s financial policy are likely to happen gradually.
S&P’s current assessment of group support is based on Tata Sons remaining a single, key controlling entity, with strength derived from its ownership of a diversified portfolio of companies.
