The Reserve Bank of India reportedly rejected Tata Sons' bid earlier this month to avoid a mandatory stock-market listing. A day later, another long-running Tata problem made headlines.

Shapoorji Pallonji Group, which has been trying for years to monetise its stake in Tata Sons, is now reportedly seeking Rs 25,000 crore from the conglomerate over two years, up from about Rs 10,000 crore reported in August.

Tata Sons and SP are reportedly discussing several ways to go about this, including a buyback, a swap of shares in listed Tata companies, a direct purchase financed by overseas banks and a sale to an external global investor. Neither side has confirmed the talks.

The timing and how Tata Sons buys the stake matters, as all the above options will have different consequences for the Tata Trusts.

If Tata Sons absorbs and cancels SP's shares, the Trusts' percentage ownership rises automatically. If an outside investor buys those shares, the Trusts' percentage does not change.

That makes the negotiations about more than how much SP gets paid. They could also determine how exposed the Trusts are to dilution when Tata Sons eventually has to bring outside shareholders into the company.

Once Tata Sons lists, SP could in principle sell its shares into the public float, but that would happen on the market’s timetable rather than SP’s, and would leave Tata Sons no say over who ends up holding the stake. Resolving it now lets both sides control the outcome instead.

A one-percentage-point shift in the Trusts' stake is worth roughly Rs 11,900 crore, based on the current sum-of-parts value of Tata Sons' 17 listed holdings of Rs 11.88 lakh crore.

In other words, a technical deal over SP's stake could have consequences worth thousands of crores.

SP Needs Liquidity, Tata Needs Control

Tata Sons has been in talks over a buyback covering part of the stake held by the Shapoor Mistry branch of the Shapoorji Pallonji group. In August, the figure reported was around Rs 10,000 crore.

By 12 September, a day after the RBI's rejection letter was dated, the reported figure had risen to Rs 25,000 crore, to be paid over two years.

The options for how the buyback will go through have also widened.

Alongside a straight buyback, the two sides are reportedly considering a swap in which SP would receive shares in listed Tata companies such as Tata Power instead of cash. A direct purchase financed by overseas banks and a sale to an external global investor have also been reported.

One detail cuts through the ambiguity.

Sources describing the buyback say the proposal would give SP cash while allowing Tata Sons to retain its private-company status, which Noel Tata wants to preserve.

That makes the immediate interests of the two sides relatively clear.

SP needs liquidity. Tata Sons wants to avoid an outcome that could make its ownership structure harder to control.

SP's Tata Sons stake is worth roughly Rs 3 lakh crore on the sum-of-parts value of the listed holdings. For years it has been the group's largest asset and its most useless one.

Tata Sons converted to a private limited company in 2017. Since then, its Articles of Association have required prior approval for any transfer of shares. When SP tried to pledge its stake as loan collateral in 2020, Tata Sons went to the Supreme Court to block it. When SP looked for an outside buyer, no deal could close without Tata Trusts' consent.

Unable to sell or pledge freely, SP has borrowed against its own balance sheet instead, at rising cost. That includes a $3.35 billion private credit raise at close to 20% yield. Its total borrowings are estimated at Rs 55,000 to 60,000 crore.

There is also an immediate deadline.

SP has about Rs 3,500 crore in repayments due by the end of September. It wants the Rs 25,000 crore over two years partly to cut its borrowing cost from the current 18 to 19% range down toward 12%.

A buyback, or a direct purchase by Tata Sons, solves SP's problem in a way an outside sale cannot. Tata Sons and SP can agree on a price between themselves, without needing a third party's consent, because Tata Sons is the counterparty.

For Tata Sons, absorbing the stake removes a decade-old ownership dispute that has already reached the Supreme Court once, keeps a large block of shares out of the hands of an outside investor who could later demand a board seat or resell it to someone less “cooperative”, and, as the next section shows, raises the Trusts’ own share of the company as a side effect.

How Tata Sons Buys The Shares Matters

When a company buys back its own shares, those shares are cancelled.

Indian company law does not allow a firm to hold its own shares as treasury stock.

So the total share count shrinks, and every shareholder who did not sell now owns a larger fraction of a smaller company.

That means a Tata Sons buyback of SP's shares would increase the Trusts' ownership without the Trusts buying anything.

The same would happen if Tata Sons directly purchased the shares. A swap would have the same effect if Tata Sons were the party absorbing SP's shares rather than simply arranging a trade with another buyer.

A sale to an external investor would be different.

If SP sells its shares to another investor, the number of Tata Sons shares does not change. SP leaves, and another shareholder takes its place. The Trusts' percentage remains unchanged.

That is why how the deal is done may matter more than the headline value of the deal.

Tata Trusts, through the Sir Dorabji Tata Trust, the Sir Ratan Tata Trust and a handful of smaller trusts, hold roughly 66% of Tata Sons.

SP holds about 18.37%.

If Tata Sons retires even part of that stake, the Trusts' number of shares remains the same, but their percentage ownership rises because the total number of shares becomes smaller.

The effect is particularly clear if Tata Sons retires half of SP's stake.

The Listing Problem

These buyback negotiations are happening against a bigger problem.

Reports this month, citing people familiar with the matter and an internal letter, say the RBI has rejected Tata Sons' bid to surrender its core investment company registration.

That category carries a mandatory listing once financial assets cross Rs 1 lakh crore. Neither the RBI nor Tata Sons has confirmed this, so treat it as reported rather than settled.

If the rejection stands, Tata Sons will eventually need a public float. SEBI's minimum public shareholding rules typically require at least 25% of a newly listed company to sit outside the promoter group.

That float has to come from somewhere. One option is a proportional carve-out across every existing shareholder, which dilutes the Trusts along with everyone else. Another is a fresh issue of new shares, which dilutes existing holders differently. A third option is for the float to be drawn from whatever remains of SP's stake after these buybacks or swaps.

SP has wanted liquidity for years and now has real deadlines pressing on it. The Trusts have been the party most resistant to dilution.

That is because a smaller percentage stake means a smaller share of whatever Tata Sons pays out – the Trusts rely on that income to fund their hospitals, universities and grant programmes.

A structure that lets SP exit gradually, well before any listing, while the eventual float comes from what SP has left rather than a slice of everyone's holding, would suit both sides without either having to say so out loud. On the buyback side, someone already has.

The Succession Angle

One person conspicuously absent from these talks is N Chandrasekaran. He announced in early August that he will not seek reappointment when his term as chairman ends in February 2027. Reporting on the SP talks says he has taken no part in them since.

Noel Tata and SP representatives are said to be negotiating directly instead. That puts this deal on the same timeline as the succession question, not separate from it. T V Narendran, Saurabh Agrawal and NSE's Ashish Chauhan have been named as contenders for the chairmanship.

Whoever takes the seat inherits whatever structure gets agreed before February 2027, without necessarily having shaped it.

Where The Cash Comes From

Tata Sons has almost no operating revenue of its own. Its income is nearly all dividends and buyback proceeds from the 17 listed companies it holds stakes in, and one of them supplies most of it. On an FY26 basis, TCS accounted for an estimated Rs 28,293 crore of Tata Sons' roughly Rs 32,482 crore in dividend income, or 87%, on Tata Sons' 71.74% stake.

TCS has also run its own buybacks periodically, and Tata Sons, tendering its shares each time, has been the largest beneficiary.

Rs 10,000 crore, or even Rs 25,000 crore spread over two years, is not a large sum against Tata Sons' FY26 profit after tax of Rs 31,961 crore. Funding it in cash would not be difficult. Tata Sons has not disclosed a funding source for this, so this is an inference rather than confirmed reporting.

But because dividends and buybacks from TCS make up the large majority of its income, as shown above, TCS’s cash is the most plausible source regardless of which structure is chosen.

In effect, it is TCS's cash moving through Tata Sons and into SP's hands, in exchange for shares that vanish and leave the Trusts holding more of what remains. That dependency has cut the other way before: Tata Sons' dividend income fell in FY25, for the first time in nine years, when TCS trimmed its own payout.

What is still open

The reported talks cover the Shapoor Mistry branch specifically, not the Cyrus Mistry family's share of the 18.37 %, which sources say is not currently part of the discussion. Even a completed deal may resolve only part of the SP overhang.

None of this replaces the public float a listing would eventually require. It only changes who supplies that float, and how much of it comes from any single party.

The structure question is the one to watch. A buyback, a direct purchase, or a swap where Tata Sons absorbs the shares all insulate the Trusts. A sale to an external investor does not. Which of these gets chosen, under a negotiation Noel Tata is now running directly rather than an outgoing chairman with no stake in the succession fight, may say more about who controls the group after February 2027 than the RBI's rejection letter does.

If the reporting holds up, the Trusts will not need to negotiate, litigate or spend a rupee to protect their position. Tata Sons buying out or swapping with SP, using TCS's cash, would accomplish that as a side effect of a transaction both sides have separate, urgent reasons to want.