Ousted Tata boss warns Indian group faces US$18 billion in writedowns

PUBLISHED : Thursday, 27 October, 2016, 1:08am
UPDATED : Thursday, 27 October, 2016, 1:08am

FormerTata Group Chairman Cyrus Mistry accused directors at India’s largest conglomerate of wrongfully dismissing him and warned that the tea-to-software giant may face 1.18 trillion rupees (US$18 billion) in writedowns because of five unprofitable businesses he inherited.

Mistry, who had been Tata’s chairman for almost four years, was abruptly removed from his role on Monday for non performance without the opportunity to defend himself, the executive wrote in an e-mail on Tuesday to the board of group holding company Tata Sons Ltd., a copy of which was obtained by Bloomberg.

Defending his record, Mistry said he inherited a debt-laden enterprise saddled with losses and singled out Indian Hotels Co., Tata Motors Ltd.’s passenger-vehicle operations, Tata Steel Ltd.’s European business, as well as part of the group’s power unit and its telecommunications subsidiary as “legacy hotspots,” according to the e-mail.

Despite plowing 1.96 trillion rupees -- more than the net worth of the group -- into those units, they still face challenges and realistically assessing their fair value could result in writing down about 1.18 trillion rupees over time, he wrote.

“The letter suggests that there are deeper corporate governance issues when it comes to the reporting and governance between” the various stakeholders including Tata Sons, the group’s founders and the operating companies, said Shriram Subramanian, founder of InGovern Research Services, a proxy advisory firm. “It would be strange if decisions of operating companies were deferred to the whims of one individual.”

Turmoil erupts in Tata as India’s biggest group removes chairman

Shares of group companies extended declines in Mumbai, with Tata Steel, Tata Motors and Indian Hotels falling at least 4 per cent. The National Stock Exchange asked the companies to clarify on the writedowns and its impact on the firms.

Representatives for Tata Sons and Mistry declined to comment on the letter.

The comments help shed light on the power struggle occurring at the $100 billion conglomerate in the run-up to Mistry’s ouster, which stunned India’s business community. Mistry had been pushing to transform Tata Group into a more prudent enterprise than the globetrotter that bought Jaguar Land Rover and steelmaker Corus Group Plc under Ratan Tata.

Mistry was ousted over concerns about dividends and that the charitable trusts that own much of the conglomerate lacked a voice in how the company was being run, V R Mehta, a member of the Sir Dorabji Trust, one of the company’s main shareholders, told NDTV in an interview. Mehta said Tata Group had become too dependent on earnings from its Tata Consulting Services Ltd. software unit and the Jaguar Land Rover operations.

“We cannot take it for granted for all times that these will continue to be as profitable,” said Mehta. “Already there are indications that the IT industry may be facing severe competition.”

As to Ratan Tata, he’s been seeking to reassure existing employees since replacing Mistry. On Tuesday, he had asked group companies to act as leaders in their respective markets and enhance returns to shareholders.

“The companies must focus on their market position vis-à-vis competition, and not compare themselves to their own past,” he said in a statement “The drive must be on leadership rather than to follow.”