The $18 Billion Writedown Allegation: Tata Companies Clarify
Is Tata’s $100 billion elephant drowning in writedowns?
After Cyrus Mistry's explosive letter to Tata Group’s board of directors – which led to a slump in group stocks – stock exchanges sought a clarification on the alleged $18 billion writedowns.
In the letter, Mistry singled out Indian Hotels Co., Tata Motors Ltd.’s passenger-vehicle operations, Tata Steel Ltd.’s European business and Tata Power Ltd.’s operations as ‘legacy hotspots’.
Some of these companies have since responded with clarifications.
Tata Motors
In his letter, Mistry signalled that the Nano – developed by Ratan Tata after he saw a family of four on a scooter on a rainy evening – should be scrapped as the project was consistently unprofitable and at its peak lost Rs 1,000 crore.
"As there is no line of sight to profitability for the Nano, any turnaround strategy for the company requires to shut it down," Mistry wrote.
"Emotional reasons alone have kept us away from this crucial decision.”
In response, Tata Motors said in a statement filed on the Bombay Stock Exchange, that the company’s business, product strategies, operations and financial performance are periodically reviewed and approved by the board. Its accounting policies are ‘true and fair’, the company added.
The clarification from Tata Motors came post market hours. The stock had closed over a percent lower for the day.
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Tata Steel
The steel giant's European business faced potential writedowns worth $10 billion, Mistry revealed in the letter, saying that only a part of it had been shown in the books.
Shares of Tata Steel, which were down nearly 3 percent during the day, pared losses after the clarification and finally ended 0.4 percent lower on the Bombay Stock Exchange.
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Indian Hotels
The response from Indian Hotels Company Ltd. mirrored that of Tata Steel.
The hospitality company's "beyond flawed international strategy" added to the loss that Mistry inherited, the ousted Tata Sons chairman said in his letter.
Foreign properties and holding in Orient Hotels were sold at a loss while the "onerous terms of the lease" for Pierre, New York, have made it difficult for IHCL to from the deal, Mistry wrote.
Moreover, the overtly expensive acquisition of the Searock property led to a writedown of nearly its entire networth over the past three years, he added.
The stock remained stable after the clarification but ended 6 percent lower on the BSE.
A Securities and Exchange Board of India official told PTI that the regulator is taking note of all developments in the Tata versus Mistry saga. He further assured of immediate action on any hint of possible violation of corporate governance and listing norms or any other regulation under its jurisdiction.
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