The Credit Rating Information Services of India (Crisil) has reaffirmed its ratings of AAA, FAAA and P1+ on Tata Sons’ long-term and short-term debt instruments, respectively, in the face of the proposed buyback programme of the Tata group holding company.

The rating agency has said in a statement that Tata Sons’ proposed share buyback plan for part of its equity shares will not have a material impact on its overall risk profile.

“The buyback has been structured in a manner that ensures Tata Sons will continue to maintain its strong credit protection measures. Tata Sons’ plan to buyback its equity shares is an integral part of its plan to divest its ownership in its software business, which is operated by Tata Consultancy Services through an initial public offering in mid-2003. The company can potentially raise a substantial amount of cash by listing TCS,” Crisil has said.

According to Crisil, the buyback will not proceed unless the IPO occurs. Further, the consideration for the buyback envisages part of the settlement through listed securities and reducing cash outflows.

Even after the buyback, Tata Sons will continue to hold a large cash balance, which can be used to reduce its debt. Moreover, its remaining equity stake in TCS shall provide substantial financial flexibility.

On completion of the TCS divestment and buyback, Tata Sons will emerge as a pure holding company of the Tata group, without any large operating businesses.

The company shall continue to hold significant equity investments in Tata Iron and Steel Company (Crisil rating: AA+), Tata Engineering (FAAA), Tata Chemicals (AA), Indian Hotels, Tata Industries (AA), Tata AIG General Insurance and Tata AIG Life Insurance.

Tata Sons’ primary source of cash flows will be dividend receipts from its investments (primarily TCS). The financial flexibility arising from the company’s large investment portfolio shall provide cushion for any support extended to group companies and new businesses (mainly telecom) in the future.