The current state of Tatas is the result of poor professional advice and a malafide leadership. This has resulted in poor strategic decisions. And the entry of bad actors in key positions.
When leaders have no skin in the game, nothing to lose and everything to gain – they don’t look at downside or sustainability. Any way their children won’t inherit it. So make hay while the sun shines and more when it doesn’t.
Buy Air India.
Offload Rs 40,000 crore govt loss.
Get a Padma Bhushan.
This summarises what happened in the House of Tatas. A smart CEO sees through, you eliminate him. In any case the legal system can be managed. This summarises what happened to Cyrus Mistry.
But now what.
RBI is playing chess. The way to check mate RBI is to become a NBFC under SEBI under the AIF Regulations 2012. It is a 45 days process.
The precedent already exists. India’s first and largest venture capital company just migrated to the AIF framework with a 99 year tenure. So Tata Sons can do 99 or even 999. Perpetual so to say. Yet closed ended. Now let us see what this smart move achieved.
First and foremost Tata Sons will become a pass through vehicle. So it will be tax free. The income will be taxable at the hands of the share holders. But for charitable funds that is zero tax.
In a AIF, control and ownership can be separated. AIF is a conflict of interest business. And that is ok as per the regulations. For startups, AIFs are exempted from insider trading regulations.
The debt in Tata Sons can be swapped for AIF shares. No issue. Cyrus Mistry had worked this out to the last detail.
The structure will be as follows:
Sponsor: Tata Trusts
Fund: Tata Sons Pvt Ltd with a 999 year tenure.
Manager: some new wholly owned entity created by the two holding Tata trusts
Fund size: Rs 100 lac crores target with initial corpus of Rs 5 lac crores
Trustee: Not required. Again as per precedent of the 99 year venture capital company
Other precedents: Digital India Fund Ltd in Category 2 and several others in category 1 such as the IIT Alumni Social Fund Pvt Ltd (identical to Tata Sons Pvt Ltd though much smaller at Rs 21,000 cr)
Hooks: HDFC, Axis and ICICI are already Rs 100 lac crores of public funds. Info Edge has entities under the AIF framework with a corpus of Rs 100,000 crores.
The only issue is that a category 2 AIF cannot have debt. So debt has to be swapped right away. But debt in Tata Sons is relatively small and easy to replace with aif units. The IIT Alumni Fund will gladly swap it for them overnight.
For the SP Group, this would be god sent. Profits of Tata Group coming to them through the pass through vehicle can be offset against some losses making it tax optimal. AIF units can be sold or pledged. Again a good actor like IIT Alumni Fund would happily buy.
Pramit Jhaveri is already out. Citibank needs to be removed. And Chandrasekhar. And all will be well. In almost no time.
RBI and bad actors get check mated.
