Tata Capital–Steel Related Party Deal , What It Means

Tata Capital shared a notice on its website in February 2024 to its existing shareholders and the Listing Department of National Stock Exchange of India Ltd. (NSE) and BSE Limited stating that Tata Sons Private holds a 92.83% stake in the company and 32.24% stake in Tata Steel. This means that all its transactions with Tata Steel will be considered related party transactions henceforth. Tata Capital also mentioned that it provides the facility to factor the receivables from distributors, dealers, and customers on behalf of Tata Steel along with other financing facilities including but not limited to leasing Tata Steel.

As per this factoring arrangement, any transaction of Tata Capital with Tata Steel will be considered as related party transactions. Additionally, Tata Capital has also extended its lease facilities to Tata Steel with underlying assets including passenger cars, capital goods, commercial vehicles, etc. To access these facilities, Tata Steel pays lease rentals to Tata Capital. The approximate value of these transactions during FY 2023-24 is estimated to be Rs. 3510 crore, which will further increase to Rs. 12,000 crore in FY 2024-25. As a result, Tata Capital seeks approval from shareholders beforehand to carry out these related party transactions.

What are the expected outcomes from these Related Party Transactions?

Tata Capital’s transactions with Tata Steel will help both entities generate revenue and enhance their operations. The audit committee of Tata Capital has cleared these transactions by citing the said transactions fall within the ordinary course of business of the company. To carry out these transactions, Tata Capital seeks shareholders' approval to raise an additional Rs. 20,000 crores of non-convertible debentures. The notice also mentions briefly the appointment of Mr. Sujit Kumar Varma as an Independent Director and the appointment of a Joint Statutory Auditor of the company.

The result of shareholders’ voting revealed that 100% of the votes from public institute voters and around 99.62% of the non-public institutions voters were in favor of the related party deals of Tata Capital with Tata Steel. Only 0.38% of the public non-institutions voted against the resolution of material-related party transactions with Tata Capital Limited, a related party of Tata Steel Limited.

What does the Voting Result Indicate for Shareholders?

On March 28, 2024, the remote e-voting process of the shareholders concluded. Based on the reports provided by Scrutinizer, the members of Tata Capital duly passed the resolution of approving related party deals between Tata Capital and Tata Steel with the requisite majority in favour. The shareholders' approval of the related party deals between Tata Capital and Tata Steel indicates trust in the management suggesting shareholder’s confidence in the judgment.

The voting results also reveal that a majority of shareholders are in favor of the transaction. They believe that it will benefit the company. The fact that the voting process was conducted remotely and overseen by a scrutinizer, made it more transparent and compliant with regulatory requirements. Overall, the passing of the resolution indicates that shareholders support the related party deals between Tata Capital and Tata Steel reflecting positively on the management’s decision-making and transparency in its governance.

Tata Capital Mirroring Success of Tata Sons Limited

Tata Capital Limited is registered with RBI as a core investment company that mainly holds investments in its subsidiaries. The services offered by the company are carried out by its subsidiaries namely Tata Capital Financial Services Limited, Tata Capital Housing Finance Limited, Tata Cleantech Capital Limited, and Tata Securities Limited. The current product portfolio of Tata Capital comprises consumer loans, business loans, two-wheeler and auto loans, home loans, personal loans business working capital loans, business equipment loans, loans against securities, insurance services, and credit cards. With the highest-ever Profit after Tax of Rs. 2975 crores in 2023, Tata Capital has displayed sharp growth while keeping its operational and credit costs under check. The RoE of Tata Capital grew to 17.3% in FY23 as compared to 15.6% in FY22.

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