Tata Trusts to exit Taj, sell Rs 1,000cr stake to Tata Sons

Mumbai: In a move aimed at tightening its grip over Indian Hotels, Tata Sons will buy a 7% stake worth over Rs 1,000 crore in the company from three Tata Trusts. With a nearly 30% stake, Tata Sons is already a major shareholder in Indian Hotels. The company will acquire the stake in Indian Hotels, which owns the Taj chain, from Sir Dorabji Tata Trust, Lady Tata Memorial Trust and Sir Ratan Tata Trust. The transaction will see the exit of

Tata Trusts

from Indian Hotels, the first such stake offloading after last year’s boardroom battle.

Tata Sons said that it plans to buy Indian Hotels’ shares on or after March 13. The acquisition cost will be the prevailing price of Indian Hotels on the date of purchase but it won’t be more than 25% of the company’s 60-day average trading price of Rs 135. The 7% stake is worth Rs 1,060 crore based on Indian Hotels’ Tuesday closing price of Rs 134.

The transaction is aimed at restructuring the group’s investment portfolio, Tata Sons said. Though the three public charitable trusts have been historically holding stakes in Indian Hotels, their equity interest in the company has been coming down over the years. This is because these trusts are legally restricted from participating in any equity financing programmes of the company and, as a result, their holdings have been on the decline. Recently after the 2017 rights issue of Indian Hotels, the three trusts saw their combined stake fall from nearly 8% to 7%.

The buyout will mark the Trusts’ exit from Indian Hotels, whose first property, the

Taj Mahal Palace

in Colaba, Mumbai, was founded by Jamsetji Tata in 1903. Sir Dorabji Tata Trust was established after Jamsetji’s elder son, Lady Memorial Trust after Dorabji’s wife Meherbai, and Sir Ratan Tata Trust after Dorabji’s younger brother. Sir Dorabji Tata Trust, along with Sir Ratan Tata Trust control Tata Sons with a 66% stake. A law and tax expert said that public charitable trusts are not allowed to hold equity shares of a company. If they hold, then it requires the approval of the charity commissioner. Also, if those equity shares are held after 1973, then the trusts are not eligible for income tax exemptions.

A high shareholding of 37% in Indian Hotels is expected to help Tata Sons in future corporate battles. During last year’s boardroom fight between Ratan Tata and Cyrus Mistry, Tata Sons found itself in a spot due to its low shareholding in operating entities and it had to depend on the support of institutional investors. The purchase will also help in untangling cross-holding structure at Indian Hotels. Besides Tata Sons and the three Tata Trusts, eight other entities form part of the promoter group at Indian Hotels.


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