TCS Shares Fall 3% At Market Open—But There's More To The Story

Shares of Tata Consultancy Services (TCS) were dropping on Tuesday after reports surfaced that parent Tata Sons was looking to offload a major stake in the IT giant.

What Happened: Tata Sons is set to divest a 0.65% stake in its flagship TCS on Tuesday in the open market, according to a term sheet seen by the media. It will offload 23.4 million shares at a floor price of ₹4,001.

The base price, which is 3.7% lower than the stock's last close, will enable Tata Sons to raise ₹9,362 crore. JP Morgan and Citi are the investment banks handling the share sale.

This marks the second significant block deal in the domestic markets this month, following British American Tobacco's (BAT's) sale of a 3.5% stake in ITC on March 13 to raise ₹17,485 crore.

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Hidden Reasons? Reports suggested the proceeds from the stake sale would be used to pay off debt at the holding firm and help it declassify itself from the Reserve Bank of India's upper layer tag and avoid a public listing by September next year.

Tata Sons has already witnessed a sharp drop in its net debt to ₹5,656 crore in the 10 months ended January this year, as its cash reserves went up to ₹9,516 crore during this period.

At the same time, the Tata Group‘s holding company’s gross debt nearly halved to ₹15,173 crore on a standalone basis (until January 2024). The RBI had directed NBFC-upper layer tagged companies to go public by September 2025.

In December, Tata Sons raised nearly ₹12,300 crore by tendering shares of TCS in its ₹17,000 crore buyback. The buyback price was set at ₹4,150 per share. Since 2017, Tata Sons has raised about ₹54,000 crore by tendering shares in buyback.

Over the past year, TCS shares have gained nearly 33%, slightly outperforming the Nifty50 index, which has risen 30%.

Price Action: TCS’ share price was down 2.83% at ₹4,034.90 near the start of trade on Tuesday.

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