Washing dirty linen in public is not a bad thing. Especially when it comes to closely held companies because that is the only way we can get a glimpse of the goings on at such organisations. The Ratan Tata-Cyrus Mistry fracas is proof of this.
As the war of words between the Tata and Mistry camps intensifies, many details and views are being made public, which otherwise would not have been the case at all.
A report in the Business Standard has brought the focus on Tata Steel with an unnamed director of the company telling the newspaper that the decision to sell Tata Steel Europe was taken by the entire board and Mistry cannot be blamed solely for it.
"Dozens and dozens of meetings of the board took place, including with British labour unions and British ministers, who came to Mumbai,” the director has been quoted as saying in the report.
The Tata Steel director has also told the newspaper that the agenda of every meeting was send to all the directors and Ratan Tata too got these mails as he was chairman emeritus. So why didn't he react when the decision was being taken, he asks.
Moreover, the director says when Tata was the chairman, he was advised to sell the loss-making operations. "But, it was Tata who was not willing to get out,” he has told the newspaper.
According to him, while finding fault with Cyrus Mistry, nobody is asking whether acquisition of Corus in 2007 was indeed a right one.
He has put his weight behind Mistry saying the ousted chairman was in no way responsible for the buyout at high cost, for he only inherited it. Mistry was only trying to clean it up.
The Tata camp had earlier indicated that the poor show by Tata Steel Europe was among the many reasons for ousting Mistry.
A report in The Financial Times had on 26 October said, citing analysts, that the sudden sacking "might raise question marks on the continuation" of the strategy to sell Tata Steel's UK business. CLSA analysts quoted in the report said Mistry is thought to be behind the move to sell the European assets and with Ratan Tata back at the helm, this move is likely to be reversed.
On Monday, reacting to the changes at Tata Sons, Brickwork Ratings revised outlook for Tata Steel to negative though it continued to place the company in the 'high degree of safety' category with regard to the services to debt.
"Essentially the Rating reflects heightened management risk and the current stage of lack of clarity at group level management that may impact strategic decision-making at Tata Steel Ltd," Brickwork had said.
In the letter to Tata Sons board, Mistry had said a fair value assessment of legacy hotspots such as Indian Hotels, Tata Motors PV, Tata Steel Europe, Tata Power Mundra and Tata Teleservices would result in a write-down of about Rs 118,000 crore.
"In the face of above challenges, I had to take many tough decisions with sensitive care to the group's reputaion as well as containing panic amidst internal and external stakeholders...," Mistry said in the letter defending his decision to sell certain assets of the group such as fertilizer and UK steel businesses.
A look at how Tata Steel's debt burden increased will prove Mistry's concerns right.
In 2006 March, the company had a minuscule debt of Rs 3,377 crore. This jumped to Rs 24,926 crore a year later and then more than doubled to Rs 53,625 crore the next year. The debt as of March 2016 stands at Rs 86,204 crore.
Indeed, why is nobody questioning the highly-leveraged buyout strategy at all?
One may make the argument that nobody expected the global financial crisis to break out in 2008 and continue to cripple demand for years to come. But how can one justify clinging on to a loss-making investment that drains millions of pounds on a monthly basis?
Like the Nano, Tata Steel Europe too seems to be an emotional investment for the Tatas.
(Data inputs from Kishor Kadam)