In a testament to Tata Sons’ outsized influence over its sprawling conglomerate, S&P Global Ratings on Tuesday upgraded the creditworthiness of several Tata Group companies citing expectations of “extraordinary support” from the holding company.
It raised its rating of Tata Motors Ltd by two notches, and that of Tata Steel Ltd and Tata Power Co Ltd by one notch each. Unlisted subsidiaries Jaguar Land Rover, TML Holdings, and ABJA Investment also benefited from S&P’s reassessment. The rating firm also changed its outlook on Tata Capital to positive from stable, setting expectations of a rating upgrade.
S&P analysts attributed the improved ratings to greater strategic cohesion and operational links among Tata Group companies.
“The stronger strategic cohesiveness, we believe, increases the longer-term commitment of Tata Sons to group entities as well as its incentive to support,” S&P analysts said in a report published late Tuesday.
S&P had initiated a reassessment of the relationship between Tata Sons and its subsidiaries in June. The rating agency sought to review the impact of higher operational integration between Tata Sons and group companies.
The conglomerate’s increased integration was exemplified by Tata Sons’ subsidiary Agratas, which is setting up battery plants in the UK and India. The units are expected to supply most of their production to Tata Motors and JLR to power their electric vehicles, S&P analysts said, capturing more value within the conglomerate.
Electric vehicles will lead to further integration within the Tata Group, they said. Companies like Tata Power, Tata Chemicals Ltd, Tata Consultancy Services Ltd, and Tata Communications Ltd are expected to collaborate with Tata Motors for technology and charging infrastructure.
Tata Sons is also involved directly with the strategies of group firms. For instance, the holding company led negotiations with the UK government for securing sovereign funding for the restructuring of Tata Steel’s Wales-based plant, the analysts noted.
“Tata Sons has a clear imprint on the group's financial strategy, in line with a groupwide focus on managing leverage,” the S&P analysts said in their June report.
Tata Motors and Tata Steel stocks dipped 0.15% and 1.36%, respectively, on Wednesday. Tata Power gained 0.5%. Sensex ended the day 0.13% higher.
