In a veiled attack on Tata Sons chairman Ratan Tata, the just ousted Cyrus Mistry on Wednesday exposed the group's financial weakness saying the Tata group companies may have to make a write-off of a staggering Rs 1.18 trillion or $18 billion over the years based on a "realistic assessment" of fair value of some businesses.
Cyrus' disclosure roiled shares of Tata group companies in the last 30 minutes of trading with Indian Hotels closing down 4.7 per cent, Tata Motors 4.3 per cent, Tata Steel 4 per cent, Tata Metaliks 3.9 per cent, Tata Elxsi and Tata Communication 3.3 per cent, Tata Chemicals 3.1 per cent and Tata Global 3 per cent.
Following the disclosure of Mistry's letter in the media and fall in Tata companies shares. stock exchanges have asked 6 Tata group companies to clarify on the former Tata Sons chairman's claims.
In a letter dated October 25 to director of Tata Sons, Mistry termed Indian Hotels, Tata Motors passenger vehicles, Tata Steel Europe, Tata Power Mundra and Tata Teleservices "legacy hotspots".
“The capital employed in those five companies has risen from Rs 1,32,000 crore to Rs 1,96,000 crore (due to operational losses, interest and capex). This figure is close to the networth of the group, which is at Rs 1,74,000 crore,” he said in the letter, which was reviewed by BTVI.
“A realistic assessment of the fair value these businesses could potentially result in a write down over time of about Rs 1,18,000 crore,” Mistry wrote.
Highlighting the wrong decision in acquiring Corus, Mistry said “the foreign acquisition strategy, with the exception of JLR and Tetley, had left a large debt overhang. The European steel business faced potential impairments in excess of $10 billion, only some of which has been taken as of date.”
Mistry goes on to say that an "onerous" lease for Indian Hotels’ US asset Pierre Hotel in New York makes exit "a challenge". “Many foreign properties of IHCL and holdings of Orient Hotels have been sold at a loss.”
Tata Chemicals still needs “tough decisions” about its UK and Kenya operations, Mistry said.
Attacking Ratan Tata over his dream project Nano, Mistry said the car business was "consistently" losing money and should be shut down. The business at its peak lost Rs 1,000 crore. “The Nano product development concept called for a car below Rs 1 lakh, but the cost was always above this.”
Mistry also opposed Tata’s airlines venture, which was Ratan Tata's "passion".
SHOCKED AT BOARD DECISION
The letter comes a day after Mistry was asked to quit by the Tata Sons board and Ratan Tata was appointed as the interim chairman.
Mistry said he was “shocked beyond words” over the high-decibel drama on October 24 board meeting of Tata Sons.
“Apart from the invalidity and illegality of the business that was conducted, I have to say that the Board of Directors has not covered itself with glory,” he said in the 5-page letter.
To “replace” the chairman without much explanation and without giving him an opportunity of defending himself must be “unique” in the corporate history, Mistry said.
“The suddenness of the action and the lack of explanation has led to all manner of speculation and has done my reputation and the reputation of the Tata Group immeasurable harm,” Mistry said while alleging “total lack of corporate governance.
“All of this does not augur well for the future of the Group.”