If one does a careful analysis of the various issues involved in the Tata discord, AIF is the only regulatory structure that will work for Tata Sons. It will get around the RBI dictat for upper layer institution listing by going under SEBI instead of RBI. It will also position the group right for massive growth.
The pre requisites to pivot to an AIF structure are the following:
1. Repay all public funds such as bank borrowings. The amount pending is very little. I believe Rs 11,846 crores as of yesterday.
2. Second is to get SP group to sell their shares to a non profit like the IIT Alumni Social Fund which is itself a AIF Fund. It is the only social fund in the world capable of coming up with the kind of amount that the SP Group will want. This kind of an entity will have incentives aligned to those of the Tata Trusts.
3. Third is to create a manager entity as a JV between the two main Tata Trusts in the form of a private limited company. No trust is required to be created as the AIF Regulations have enough precedent of funds set up as companies (the Berkshire Hathaway model). In the IIT cloud alone there is around Rs 5 lac crores in the company format.
4. Fourth is to apply to SEBI for registering Tata Sons Pvt Ltd as an AIF under category 2 of the AIF Regulations 2012. During Cyrus Mistry’s time the AIF route hit the roadblock of a peak tenure of 20 years. Subsequently the IIT Alumni funds managed to convince SEBi to withdraw this limit. A precedent has recently been approved for a 99 year tenure fund. There is no reason in law why it can’t be 999 years or 9999 years.
Once this is done, essentially the manager entity controls the fund company which is Tata Sons Pvt Ltd. It doesn’t now matter who the investors are.
Indian law is very clear that even if a AIF is 100% foreign funded, it is an Indian company provided control vests in India. And all profits for Tata Trusts would be tax free as an AIF is a pass through.
Chandrasekhar is neither an engineer nor a MBA – just a politician seeking self promotion and self gain. No structure can solve for human stupidity. This has to be solved outside of the solution.
Pramit gone. Srinivasan and Chandrasekhar next.
They have to cover liabilities. This includes Air India. Full marks to my old colleague Amber Dubey and Jyotiraditya Scindia for palming off Air India to Chandrasekhar.
It just cost them Rs 40,000 one time to give a Padma medal to Chandrasekhar and they got rid of a Rs 40,000 cr pa liability to the Tatas. No one in his right frame of mind would pay to buy a noose around his neck. Tatas as going to loose at least Rs 2 lac crores managing this white elephant. But that is irreversible.
Goods once sold will not be taken back. They can crib and cry and the govt will throw some pennies their way.
The only way out for them is to massively scale up other operations like power or defence where govt can help them.
