Tata Realty and Infrastructure (TRIL) will acquire Tata Sons’ stake in Tata Housing (THL) for about ₹3,000 crore. Both TRIL and Tata Housing are 100 per cent subsidiaries of Tata Sons. The two real estate firms were competing for projects in the same cities in the past, which is a factor behind the integration.

This is part of Tata Sons’ overall plans to restructure group companies to streamline the internal shareholding structure and businesses.

Rights issue

To raise funds for the real estate deal, TRIL will first come up with a rights issue, which will be subscribed by Tata Sons. TRIL will then pick up Tata Sons’ stake in Tata Housing. A Tata Sons spokesperson did not comment on the restructuring.

The plan is to integrate TRIL’s commercial real estate division with Tata Housing’s residential business. Both TRIL and Tata Housing have overlapping business interests due to planned residential projects in Delhi, Pune and other cities.

Tata Housing’s project portfolio mainly comprises housing in various income group segments, ranging from low-cost to premium/luxury projects. These are spread across metros and tier-I cities, including Mumbai, Delhi NCR, Bengaluru, Kolkata, Chennai and Pune.

Going forward, Tata Housing plans to focus only on premium and luxury projects, while low-cost and affordable projects will be undertaken by its wholly owned subsidiary Tata Value Homes.

Henceforth, all of TRIL’s housing projects would be implemented by Tata Housing. TRIL will focus on large mixed-development retail or commercial developments along with its current portfolio of special economic zones, logistics parks, airports and road and highway projects.

Tata Group may also look to monetise the real estate and infrastructure assets for which the integration was even more important. It may look at listing a public real estate investment trust (REIT) or a private REIT in which an institutional investor may acquire a strategic stake. A REIT is an entity that owns, operates or finances income-producing real estate.

According to information available with the Registrar of Companies, Tata Housing had a loss of ₹81 crore in 2016-17, while its revenue from operations stood at ₹727 crore. In fiscal year 2015-16, the company had posted a net profit of ₹27 crore and revenue of ₹790 crore.