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Tata Sons may put Welspun deal under lens due to concerns over corporate governance

According to reports, Tata Sons is considering a forensic audit of last year’s purchase of Welspun Renewables Energy Pvt for Rs 9,249 crore by Tata Power Ltd because of concerns over corporate governance, allegedly inflated valuations and the unusual swiftness in execution, two persons with direct knowledge of the development told ET.

The 2016 acquisition, which made Tata Power one of India’s largest renewable companies with a capacity of 2.3 gigawatts, was a key point of friction between former Tata Sons chairman Cyrus Mistry and its largest shareholder Tata Trusts, which accused him of not sharing exact details of the talks. Tata Sons is the holding company for the conglomerate and Mistry was ousted as chairman in October after the board lost confidence in him.

“There were parts of the deal shared and not the entire deal structure and valuations, considering the deal size,’’ a senior Tata official told ET. Tata Sons is also understood to have received feedback from investment bankers that the valuation was excessive after factoring in profit projections.

“The financial projections were based on data provided by the Welspun management,” the same official said. “While many on the Tata Power board may have supported the decision in good faith, it was disappointing that the projections were taken at face value, and certainly not at the going rates in the industry.”

Given such concerns over the deal that had a role in the forced exit of the former chairman, Tata Sons may seek a thorough scrutiny of the acquisition. “Since the issue was a bone of contention during the removal of Mistry, it is better that in the interest of all stakeholders a forensic audit be conducted to ensure that the deal is above board,” another Tata Group official said.

A Tata Sons spokesperson declined to comment.

Tata Power dismissed ET’s queries as speculative and said there were no governance issues tied to the deal.

In an emailed response to ET, a Tata Power spokesperson said that the company participated in the acquisition of Welspun Renewables’ assets as part of a process run by Barclays from the sell side.

“We were in competition with reputed Indian and International organisations,” Tata Power said. “We have knowledge from the market sources that our price did not have much (of a) gap with (those of) others in the fray… Therefore, the points made by you are speculative. There are no governance and allied issues, as alluded by you, as the transaction is value accretive and the assets are doing well.”

Tata Power independent director Nawshir H Mirza said in response to ET’s queries: “The intention is solely to tarnish Cyrus Mistry’s name… The board has been convinced about the Welspun deal over three different meetings… The board unanimously agreed that the deal was in the best interests of the organisation. This included Tata Sons’ nominee directors too.”

The acquisition was one of the contentious issues raised by Tata Trusts during the fight with Mistry after he was removed as chairman of Tata Sons on October 24, 2016.

Tata Trusts believes that the deal could have been better structured so that it was beneficial to all the shareholders of Tata Power instead of the multi-layered, stepdown subsidiary structure that was adopted, said the people cited above. Tata Power said it embarked on the transaction after fully evaluating the deal.

“From the governance framework, Tata Power Renewables Energy worked with reputed M&A advisory, law, and tax firms, who evaluated every aspect with great details. Also, the board of TPREL as well as Tata Power approved the transaction with full transparency associated with the acquisition,” the Tata Power spokesperson said.

Mistry has said previously that all Tata Sons board members were informed about the acquisition at every stage.

“In the early part of this year, Tata Power made a presentation to Tata Sons that a significant focus area would be the renewables sector,” Mistry said in an email after his ouster last year. “The Tata Sons Board appreciated it. On May 31, 2016, a note was circulated to the board of Tata Sons and to Mr Ratan Tata (he was sent all board notes as chairman emeritus) providing information about the proposed Welspun transaction, and asking them if they needed any further information.

The only board member to reply was Mr Vijay Singh, a nominee director.” Tata Power CEO Anil Sardana made a detailed presentation to the Tata Sons board on June 30 last year.

“The discussion covered all aspects of the transaction, including the structure, and the Tata Sons board unanimously approved the transaction,” Mistry said in the same statement. “Therefore, to even suggest that the Tata Sons board, including the nominee directors of the Tata Trusts, had not been adequately informed is contrary to the factual record.”

Tata Power independent director Mirza told the media that the board had unanimously endorsed the proposal, and that it was in line the company’s strategy to quickly build a large, non-conventional energy portfolio.

Welspun Group chairman Balkrishan Goenka said earlier this year that there was nothing improper about the deal.

“There is no controversy from our side. As far as we are concerned, we are clear that the deal was done on merit and after proper due diligence. It did not happen in one month but took 6-8 months. The deal went through all the processes. I don’t know what the controversy is,” Goenka told ET in an interview in January. “We don’t have any relations with (Mistry’s) Shapoorji Pallonji Group in the past or present.

I have met Cyrus Mistry only twice in my life. The deal discussion took place between my team and Tata Power’s managing director Anil Sardana,” Goenka had said.

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