Mistry tears into Tatas, says Nano should be shut, quizzes other deals
In a five-page mail to the board and trustees of Tata Trusts, Mistry detailed “flawed strategies” and “questionable transactions” from the past and said the value of five “haemorrhaging businesses” that he had inherited— Indian Hotels, Tata Motors, Tata Steel Europe, Tata Power Mundra and Teleservices—may have to be written down by a crushing Rs 118,000 crore ($18 billion).
Describing them as “legacy hotspots”, he said that between 2011 and 2015 “capital employed in those companies has risen from Rs 132,000 crore to Rs 196,000 crore (due to operational losses, interest and capex)” whereas the net worth of the entire Tata group was Rs 174,000 crore.
Mistry tore into Ratan Tata’s much-cherished Nano, saying the car “has consistently lost value, peaking at Rs 1,000 crore”. More damagingly, he said that with “no line of sight to profitability for the Nano, any turnaround strategy” for Tata Motors required that production of the car be “shut down”. “Emotional reasons alone have kept us away from this crucial decision,” he said.
Continuing with his thinly-veiled attack on Tata, Mistry wrote, “Another challenge in shutting down Nano is that it would stop the supply of the Nano gliders to an entity that makes electric cars and in which Mr Tata has a stake.”
Turning to another business that Tata is known to be passionate about, Mistry said his “pushback” to the group’s foray into aviation was “hard but futile.” He spoke of how Tata had, without any prior consultation, all but forced him to invest in the group’s joint ventures with Air Asia and later Singapore Airlines; since then, on Tata’s “advice”, the board of the group’s holding company had pumped funds in multiples of the “initial commitment”.
Not restricting himself to criticism of poor business decisions, Mistry cast a shadow over a range of financial deals. For instance, he spoke of “ethical concerns” over “certain transactions” in Air Asia. “A recent forensic investigation revealed fraudulent transactions of Rs 22 crore involving non-existent parties in India and Singapore. Executive Trustee Mr Venkataraman (sic), who is on the board of Air Asia and also a shareholder in the company, considered these transactions as non-material and did not encourage further study,” Mistry said.
“It was only at the instance of the independent directors, one of whom immediately submitted his resignation, that the board decided to belatedly file a first information report,” he added.
He also drew a red line under a loan that Tata Capital advanced to serial entrepreneur C Sivasankaran “under the strong advice of Executive Trustee Venkatraman”, which later turned into a non-performing asset.
Mistry—who has been criticized for his handling of the group’s dispute with DoCoMo, its Japanese joint venture partner in telecom—stopped just short of questioning the legality of the deal by saying “the original structure of the transaction raises several questions about its appropriateness from a commercial or prudential perspective within the then prevailing Indian legal framework”.
He raked up the acquisition of the Searock property in Mumbai “at a highly inflated price and housed in an off-balance sheet structure”; later, almost its entire net worth to be written down.
Mistry even suggested that Tata Sons had exposed itself to the risk of violating insider trading regulations when at a board meeting, Tata Trusts representatives Nitin Nohria and Vijay Singh stepped out for almost an hour—while the other members waited—to “obtain instructions from Mr Tata”.
Above and beyond his various charges, Mistry appeared to question the very cornerstone of Ratan Tata’s years-long strategy to drive the group’s global presence through acquisitions such as Corus and JLR. “As is public knowledge, the foreign acquisition strategy, with the exceptions of JLF and Tetley, had left a large debt overhang,” he said, referring in particular to the group’s European steel business and overseas hotels, which had to be sold at a loss.
Clearly, the trigger for Mistry’s stinging attack on Tata and Tata Sons directors is his dismissal as chairman. And his letter starts by acknowledging as much: “I was shocked beyond words at the happenings at the board meeting of October 24, 2016. 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. To ‘replace’ your chairman without so much as a word of explanation and without affording him an opportunity of defending himself in a summary manner must be unique in the annals of corporate history.” (Our sister publication, The Economic Times, was the first to report this.)
He goes on to detail how after being promised a “free hand”, the articles of association of the holding company were changed, “alternative power centres without any formal responsibility” were created, and his freedom to turn around the group was “severely constrained”—all of which resulted in “dysfunctional governance” and reduced him to the position of “lame-duck chairman”.
Rejecting the charge of non-performance, he pointed out that the nomination and remuneration committee had “only recently lauded and commended my performance”.
A Tata Sons spokesman declined to respond on the contents of Mistry’s mail.