Rationale

 On June 4, 2024, the board of TMF Holdings Limited (TMFHL), Tata Motors Finance Limited (erstwhile and Tata Motors Finance Solutions Limited; TMFL) and Tata Capital Limited (TCL) approved a scheme of arrangement for the merger of TMFL with TCL. Under the non-cash transaction, TCL shall issue equity shares to TMFL’s shareholders as consideration for the merger. Thus, TMFHL will hold a 4.7% stake in the merged entity. The scheme is subject to sanction from the stock exchanges, regulators, the National Company Law Tribunal (NCLT) and the requisite approvals from other stakeholders. The merger is expected to be concluded in 9-12 months, after which TMFL will cease to exist and would operate as a division of TCL. Although TMFL, a wholly owned subsidiary of TMFHL, operates as a captive financier of TML’s vehicles, TCL is not expected to face such constraints after the merger. ICRA takes note of Tata Motors Limited’s (TML) stated intent to support the timely debt servicing of the standalone liabilities of TMFHL post completion of the merger. While arriving at the current ratings, ICRA has considered the consolidated performance of TMF Holdings limited (TMFHL) and its subsidiaries, together referred to as the TMF Group), given the strong operational and financial synergies between the companies. Currently ICRA’s ratings for the TMF Group derive significant support from its ultimate parentage in the form of TML (rated [ICRA]AA (Stable)/[ICRA]A1+). The Group’s ratings are strongly linked to the expectation of continued support from TML. ICRA notes that in the past, support from TML included access to capital, management and systems and supervision by its board. After the completion of the merger, the ratings will continue to factor in the support from the parent, given its stated intent to help the timely servicing of the company’s debt.