The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Pranav Kiran

BENGALURU, March 28 (Reuters Breakingviews) - One of India's biggest family businesses is in an pickle. Tata Group, the sprawling cars-to-tech conglomerate, is hurtling towards a forced listing of its holding company that would lump it with a yawning market discount. And if that wasn't bad enough, scrutiny that comes with an initial public offering could create other problems too.

Tata Sons, overseen by Chair Emeritus Ratan Tata, is vast. It houses the group's stakes in around 14 listed companies, including Tata Consultancy Services TCS.NS, Jaguar Land Rover-owner Tata Motors TAMO.NS and Tata Steel TISC.NS. It also owns unlisted businesses such as Air India and others that tap into India's high-tech manufacturing ambitions; privately-held Tata Electronics, for example, assembles iPhones for Apple and is building a big semiconductor fabrication facility in Dholera, Gujarat.

All of that may soon be shoved into the public eye. Around 18 months ago the central bank categorised Tata Sons as an "upper layer" non-bank financial company. That effectively required it to list within three years. So its deadline for a debut, September 2025, is approaching. Speculation is starting to pick up about how much the company might be worth.

The Reserve Bank of India's intentions are good. It is eager to avoid a repeat of the failure of Infrastructure Leasing & Financial Services. The default in 2018 of that shadow bank with debt of over $12 billion sent markets into a panic and triggered a liquidity crisis that caused prominent businesses to collapse.

Tata Sons appears to be preparing for action. It raised $1 billion last week by selling some of its 72% stake in Tata Consultancy. It could use those proceeds to trim debt to clean up the holding company ahead of floating it. It's unlikely that tidying up the balance sheet would be enough to avoid a listing altogether, however.

In total, Tata Sons’ holdings might be worth $194 billion. Its listed stakes alone amount to $187 billion per Breakingviews calculations, and analysts at Jefferies estimate a book value of almost $7 billion for the rest. If fully valued by the markets, and not factoring in any debt, Tata Sons would rank as India's second largest listed company after Mukesh Ambani's $244 billion Reliance Industries RELI.NS.

Yet a full valuation is unrealistic. Indian entities suffer from high holding company discounts. The figure averages 67% across major sectors, according to research firm Incwert. The discount would be hard to swallow for a group like Tata that has painstakingly listed its individual companies to avoid such value gaps and kept other businesses private so that it can incubate them. By contrast, Ambani houses his oil-to-retail empire under one listed entity.

The final wrinkle is possibly the most complicated. A listing of Tata Sons could impact the entity's ultimate owners. Two-thirds of the holding company is owned by a network of charitable trusts that run cancer hospitals and give out education scholarships among other things. Some of them are more than a century old and, for that reason, have exemptions that allow them to own shares in companies without tax implications.

Those exemptions have been challenged in the past, however. Tata has twice beaten India's tax administrators in court. Globally, Rolex, Ikea and Carlsberg CARLb.CO are owned or controlled by charities. But such structures aren’t common in India.

One potential worry is that Tata Sons' listing will highlight the special treatment its owners receive, and whether that is still deserved. Any fresh challenge on that front could force another restructuring even higher up.

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CONTEXT NEWS

Tata Sons could be valued at as much as 8 trillion rupees ($96 billion) in a potential initial public offering within 18 months, Bloomberg reported on March 5 citing research from Mumbai-based Spark PWM.

Tata Sons and 15 other companies were categorised as upper layer non-banking financial companies (NBFC) by the Reserve Bank of India in September 2022. Upper layer NBFCs must be listed in public markets within three years of being categorised as such, according to RBI rules announced in October 2021.

Shares of Tata Consultancy Services fell 4% on March 19 after its top shareholder, Tata Sons, sold shares worth more than $1 billion in the company. Tata Sons owned 72.4% of TCS, as of December.

(Editing by Una Galani and Katrina Hamlin)

((For previous columns by the author, Reuters customers can click on KIRAN/
pranavkiran.t@thomsonreuters.com; Reuters Messaging: pranavkiran.t@thomsonreuters.com@reuters.net))