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Warburg Pincus to buy 43% stake in Tata Technologies

LiveMint logoLiveMint 15-06-2017 Shally Seth Mohile

Mumbai: Tata Motors Ltd and two other group entities will sell a 43% stake in Tata Technologies Ltd to an affiliate of US-based private equity firm Warburg Pincus Llc for $360 million (Rs2,231 crore), seeking to raise funds to reduce debt.

Warburg will purchase a 30% stake from Tata Motors and its subsidiary Sheba Properties Ltd as well as the entire 13% stake held by Tata Capital Ltd. After the sale, Tata Motors and other Tata group firms will retain a 43% stake in Tata Technologies. The remaining 14% is owned by employees of Tata Technologies.

Tata Technologies provides outsourced design, research and development services to the automotive, aerospace and industrial machinery industries. Tata Motors owns 70.4% of the Singapore-based company, according to its annual report.

“This transaction represents a tremendous endorsement of what we have achieved so far,” said Warren Harris, managing director and chief executive at Tata Technologies, in a phone interview.

Tata Technologies represents a good investment proposition for the future and Tata Motors is likely to stay invested in the company, Harris said. Asked whether the company will seek a stock-market listing, he said there are no such plans for the near term. The option of an initial public offering (IPO) will be evaluated over the next three to five years, he said.

This is the first big divestment by the Tata group flagship since N. Chandrasekaran came on board in February as chairman of Tata Sons Ltd, and of its group companies.

The move will help Tata Motors pare debt. Its consolidated debt (including that at UK subsidiary Jaguar Land Rover Automotive Plc) stood at Rs79,323.36 crore at the end of fiscal 2016-17.

The move is also part of Tata Motors’ plan to exit from non-core businesses and in line with Chandrasekran’s effort to consolidate the operations of Tata group’s flagship companies.

Citigroup Global Markets India Pvt. Ltd acted as the financial adviser to Tata Motors and Tata Capital Investment Banking acted as the sole financial adviser to Tata Capital. The transaction is subject to regulatory approvals, Tata Motors said in a statement.

While the divestment is a good move and in line with Tata Motors’s aim of exiting non-core businesses, “it will not have a material impact,” said Bharat Gianani, an analyst at the securities house Sharekhan Ltd.

An analyst at another domestic brokerage, who declined to be identified, said that instead of getting a financial investor on board, Tata Motors should have opted for a strategic investor who could have added more value to the business.

A Tata group company like Tata Consultancy Services Ltd would have been a better bet, this analyst said. “I think it’s a desperate move,” the analyst added.

For Warburg, this is the second bet in the engineering services space in India. In December 2015, Warburg sold its stake in global engineering solutions provider QuEST Global Services Pte. to a consortium of private equity investors including Bain Capital, GIC Pte. and Advent International Corp. Warburg, which had invested $75 million in QuEST, made a return of over three times.

Tata Motors shares closed at Rs448.45, down 0.7%, on the BSE. The announcement was made after the market closed on Thursday. The benchmark Sensex closed at 31,075.73 points, down 0.26% points.

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