Tata Group Companies Rebut Cyrus Mistry’s ‘Letter Bomb’
Five Tata group companies look to clear the air, six days after Cyrus Mistry’s letter
Six days after former Tata Sons Ltd. Chairman Cyrus Mistry wrote a letter to the board of the company and trustees of Tata Trusts claiming a potential writeoff of Rs 1.18 lakh crore, the audit committees of five of the six listed companies mentioned in the letter have responded to queries raised by the National Stock Exchange.
Questions Raised By The NSE
The stock exchange in its letters dated October 27, two days after the Cyrus Mistry’s email, raised the following questions:
- Whether the risk committee, if any, had considered all the risks involved in investment/acquisitions etc.. in which the company was directly or indirectly involved. If yes, whether the views of the risk committee were communicated to the shareholders?
- Whether the directors have discharged their role at expected levels as per the listing guidelines?
- Whether the company disclosed all major developments as per the listing agreement?
- Place the matter before the risk committee since the letter points to the financial risks of investments?
- Place the matter in front of the whistle blower/vigilance committee and offer their comments at the earliest
- Cyrus Mistry’s status on the company’s board after his replacement as chairman of Tata Sons.
The Companies’ Response
Tata Teleservices (Maharashtra) Ltd.
If we were to exit this business (telecom) via fire sale or shut down, the cost would be $4-5 billion. This is in addition to any payout to DoCoMo of at least a billion-plus dollars. The original structure of the DoCoMo transaction raises several questions about its appropriateness from a commercial or prudential perspective within the then prevailing Indian legal framework.Cyrus Mistry, Former Chairman, Tata Sons
Tata Tele (Maharashtra) in its response to the National Stock Exchange clarified that the company is not a party to the DoCoMo transaction, and that the deal was struck by its promoter companies, Tata Teleservices Ltd. and Tata Sons.
The company went on to clarify that Cyrus Mistry was never a director or chairman on the board of the company at any given point of time. Tata Tele (Maharashtra) further stated that “all financial reports present a true and fair view of the state of affairs of the company and its business and at this stage the company has disclosed all material facts as required under applicable laws. The financial statements are audited by Deloitte Haskins & Sells LLP from time to time and company employed all vigourous processes in preparation of these statements including review by the Audit Committee and the Board of Directors.”
Tata Chemicals Ltd.
Tata Chemicals still need tough decisions about its U.K. and Kenya operations.Cyrus Mistry, Former Chairman, Tata Sons
The company in its response to the questions raised by the NSE, said that its risk management committee, the audit committee and the board of directors review and evaluate the risk associated with its investments and all operating entities on a regular basis and discusses steps to mitigate the risks.
Tata Chemicals’ Point-By-Point Response
- Though formation of the risk management committee is not mandatory under law, the board voluntarily constituted the risk management committee on February 2015.
- The committee reviewed, discussed and evaluated all risks associated with its U.K. and Kenya businesses in detail. Major restructuring activities undertaken at U.K. and Kenya operations have started showing positive operating and financial results in these entities in recent times.
- The risks associated with various businesses were communicated to the shareholders through its 2015-16 annual report.
- Cyrus Mistry’s current designation is chairman and non-executive director.
Tata Power Company Ltd.
Tata Power aggressively bid for the Mundra project based on low-priced lndonesian coal. As regulations changed, the losses in 2013-14 alone amounted to Rs 1,500 crore. Given that Mundra constitutes Rs 18,000 crore of capital employed (40 percent of the overall company’s capital employed), this substantially depresses the return on capital for Tata Power as well as carries the risk of considerable future impairment.Cyrus Mistry, Former Chairman, Tata Sons
Tata Power informed the NSE that when the company bid for the Mundra Ultra Mega Power Project (UMPP) in December 2006, it was approved by the board after considering all business aspects including associated risks.
The company said a change in Indonesian regulations in 2010 led to coal prices being set by the government on a monthly basis. This four year old issue has been discussed at several board meetings and in its annual report.
The company provided Rs 2,650 crore as impairment costs, based on future coal prices and rupee-dollar rate over the life of the asset. The company further stated that this impairment cost was reduced after coal price predictions were reduced and eventually provided for just Rs 2,250 crore.
The company went on to state that operations are managed by a duly constituted board and committees, each having its defined role and processes which include investment decisions, risk assessment and mitigation management. The company further stated that when it bid for Mundra UMPP in 2006, the concept of risk management committee was not introduced and all decisions were taken by the board.
The company added that Cyrus Mistry continues to be the chairman and non-executive director of the company.
Tata Motors Ltd.
Historically, the company has employed aggressive accounting to capitalize substantial proportion of the product development expenses, creating a future liability. Beyond this, the Nano product development concept called for a car below Rs 1 lakh, but the costs were always above this. This product has consistently lost money, peaking at 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. Emotional reasons alone have kept us away from this crucial decision.Cyrus Mistry, Former Chairman, Tata Sons
Tata Motors Ltd. did not respond to the specific charges made by the former Tata Sons chairman.
- The company said it follows all required governance processes in respect to investment approvals, risk assessment. The board and its duly constituted committees review and approve long term strategies, investment and financial plans, annual budgets, including capital investment budgets.
- The company also stated that it will place this matter in front of the risk management committee and whistle blower committee as requested by the NSE.
- There is no change in Cyrus Mistry’s board position as of date.
Indian Hotels Company Ltd.
Many foreign properties of IHCL and holding in Orient Hotels have been sold at a loss. IHCL, beyond flawed international strategy, had acquired the Searock property at a highly inflated price and housed in an off balance sheet structure. In the process of unravelling this legacy, IHCL has had to write down nearly its entire networth over the past three years. This impairs its ability to pay dividends.Cyrus Mistry, Former Chairman, Tata Sons
Indian Hotels responded to the NSE saying a risk management committee is not mandated by law. The company said all governance processes with respect to investment approvals, and risk assessment have been considered by the board and its duly appointed committees.
Indian Hotels added that Cyrus Mistry continues to be the chairman and director, and that any change will be duly communicated to the stock exchange.
AirAsia (India)
AirAsia Berhad disclosed to the Bourse Malayasia that, “There is an ongoing investigation against certain former personnel of AirAsia (India) Ltd. involving irregular personal expense claims and certain company charges. This has already been reported to and discussed at the previous Board meeting of AirAsia (India) Ltd.”
The Malaysian airliner which has a joint venture with the Tata Group in India said it will not make any specific reference to the matter being investigated at this stage as it may be prejudicial to the India unit or the personnel investigated.
The company added that both AirAsia (India), AirAsia Berhad and Tata Sons see these allegations of impropriety and misappropriation very seriously.