Cyrus Mistry: Tatas staring at $18 billion in writedowns

In a novel missive to the Tata Group, ousted Cyrus Mistry (chairman) warned that the tea-to-software behemoth may be staring at 18 billion dollars in writedowns due to five unprofitable businesses he inherited. Mistry, who had been Tata’s chairman for close to 4 years, was abruptly removed from his role on Monday for non-performance without an opportunity to defend himself, the executive had written in an e-mail on Tuesday to the board of group holding company Tata Sons Limited, a copy of which was obtained by the media. 

In his letter, quoted by the media, Mistry said that he was opposed to Tata’s airlines venture however the sector was Ratan Tata’s ‘passion’. Mistry also said that Tata group’s Nano car business consistently lost money and had to be closed down. Mistry also called Tata Steel Europe, Tata Tele, Tata Power Mundra, as legacy hotspots. 

This is second missive from Cyrus Mistry. In a letter written earlier, Mistry criticized the decision in scathing and harsh terms terming the move unparalleled in the annals of corporate history. The decision, Mistry said in an email to the trusts and to board members, had left him shocked beyond words. He has also described the board proceedings as illegal and invalid. 

Mistry alleged that he hadn’t been allowed freedom of action to manage affairs of the sprawling salt-to-software group, due to changes in the articles of association of Tata Sons that had reduced the power of the chairman.

On the telecom business, where Tata is presently embroiled in a spat with NTT Docomo over the payment of 1.17 billion dollars for failing to uphold a contract, Cyrus Mistry blamed his predecessor for striking such a questionable agreement. Cyrus wrote that an exit from the telecom business would cost as much as 5 billion dollars, in addition to the payout to Docomo. He said that he had focused on increasing revenue at the telecom unit in hopes of it being part of industry consolidation. 

The former chairman also blamed his predecessor for issues at Indian Hotels, which runs the Taj chain. He said that the unit had acquired a hotel in Mumbai at a very high price that had forced the firm to write down close to its entire net worth. Overseas acquisitions, encompassing an attempt to buy out ‘Orient-Express Hotels’ now Belmond, had left a large debt overhang and forced the firm to sell properties at a loss, he wrote. 

Mistry wrote that Tata Power was hamstrung by overbidding for the Mundra Ultra Mega Power Plant which was dependent on low-priced Indonesian coal. He added that the rules changed, culminating in losses and the project accounting for 40 per cent of Tata Power’s capital employed.

Market Effect on Tata Stocks:

Tata stocks were seen down on the National Stock Exchange (NSE). To name a few, Tata Motors share price was trading down 5.57%, Tata Steel share price was trading 5.38% lower while Tata Metaliks share price also witnessed a down movement of 4.37 per cent on the NSE today.