ICRA has assigned an 'AAA' rating to the proposed Rs 4 billion, non-convertible debenture programme of Tata Sons. The outlook on the rating is stable. ICRA now has a long-term rating of AAA (stable outlook) outstanding on the various NCD programmes, amounting to Rs 166.15 billion of the company and a short-term rating of A1+ outstanding on the Rs 26.25 billion (current outstanding nil) commercial paper programme.

The rating incorporates Tata Sons' status as the principal investment company of the Tata Group; leading business and financial position of most of its major investee companies; and strong financial flexibility derived from the market value of its investments despite increase in the debt levels to support funding requirement of its investee companies. Some of the large Tata Group companies have made substantial investments, both organic and inorganic in the past, which have resulted in substantial funding requirement for the group.

Tata Sons, being the principal holding company, has been actively participating in supporting the fund-raising programmes of some of its investee companies. These investments are being funded by a mix of dividend, interest income, stake sale in investee companies and external borrowings. This has resulted in an increase in the debt levels over the last few years, though leverage has remained almost stable. With an increase in investments, the peak borrowing levels in 2014-15 are expected to be higher, though the leverage should remain comfortable.

ICRA also notes that NTT DoCoMo will be exercising its put option in Tata Teleservices (TTSL) in 2014-15. ICRA, however, continues to draw comfort from the favourable risk profile and liquidity position of the company. Tata Sons continues to enjoy strong liquidity profile supported by adequate cash reserves and ability to raise funds through monetisation of investments. 

With the improvement in the stock market performance, the market value of Tata Sons' quoted equity investments increased to ~Rs 3673.28 billion (as on Mar. 31, 2014). With 50% of the appreciation in the market value of these investments allowed to be added to the net worth for the calculation of capital adequacy as per the guidelines for core investment companies issued by the RBI, the borrowing limit becomes inconsequential for Tata Sons considering the market value of its investments. Also, Tata Sons has a substantial investment portfolio which is not listed in exchanges, which could potentially contribute to large values in the future.