Prom: "Cyrus P. Mistry” LST Ces Cys gal Saibjects Confidential October 25, 2016 Dinestors of Tata Sons Li. cont TIAL [nwa ocked beyond wordsat the happenings a th board meeting of October 24,2016, Ann Hasse satdagy and legality of the business that was conducted, I have to say that the Feed nf Directors has not covered itself with glory. To “replace” your Chairman without se aoa aword of explanation and without affording him an opportunity of defending bimselt rae ae any rane aust be unique in the anals of corporate history. The suddenness of Tan te lack of explanation has lod to all manner of speculation and bas Gone my wre tation and the eeputaion of the Tata Group immeasurable harm At the outset, Ihave to sey that Ive great respect for the Tata Group and the thousands 0 AMS ees tho ave working hard despite the challenges am wing hs let ote Boa Soest lack of corporate governance and o pois out the fiir on he Paro ramets dncharge the fiduciary duly owed to stakeholders of Tala Sons and ofthe grout arcs All of his docs not aug well fer the fate of the Group. All that ssid ete Soran vaany sanong you, but I would like to putin one place my journey as Chaimat dae eee ris mporant te emphasise the enormity of what has tanspired inthe Grout oa on cutive selon isto be taken. Each of yous already in receipt ofan familiar witthe Strategy 2025 document that I presented to you, and in which I had articulated our growth strategy forthe fare In 2011, ater some exploration by a search committee, I was approached by both Ratan Tats snd Lord Bhattacharya individually tobe a candidate forthe position, 1 politely declined. ad myself built @ business which T would continue 10 run, However, the search process progressed and the committee was unable 10 find a suitable candidate, 1 was asked 10 reconsider. Aer consulting my family and in the broader intorests of the Tata Group, I ook ‘courage to overcome my inital reluctance and agred to consider the position, Prior to my appointment, | was assured that I would be given a five hank, The previous ‘Chairman was o step back and be available for advice and guidance as and when needed, Ale ‘my appoiniment, the Articles of Assocation were modified, changing the rules ul engaerne between the Trusts, the Board of Tata Sons, the Chairman, and the operating ‘companies. Inappropriate interpretation indeed followed, and as elaborated below, it Severely ‘constrained the ability ofthe group to engineer the necessary turnaround 1am not sue if the individual board members and the tustees truly appreciated the extent of the problems [had inherited I eannot blame them, for I myself, as @ non-executive ditetor, didnot havea lear grasp of the gravity ofthe ssues involved. Without meaning to gira laundry list, let me outline some of the major challenges faced atthe ime of my entry. Asis pubic knowledge, the foreign acquisition stategy, with the exceptions ofJLR and Tele, had let a lage debt overhang. The European steel business faced potential impairments in excess of USD 10 billion, only some of which has been taken as of date. Many foreign properties of LXCL and holdings in Orient Hotelsave been sold ata loss. The onerous tems Of the lease for Dicer in New York are such that it would make it challenge to exit. Tata ‘Chemicals till neds tough decisions shout its UK and Kenya operations. IHCL, beyond flawed intemational strategy, had acquired the Searock property at highly inflated price and housed in an ofT balance shect structure. In the process of unraveling this Tegaey,IHCL has had to write down neal its ene networth over the past thee yeas. This pais its ability o pay dividends ‘Tata Capital had a book that required significant clean up on account of bad loans tothe infastuctie rector. The loan to Siva was under the strong advice of Executive TrusteeOf all the companies in the portfolio, the telecom business has een continuously Fhaemorehaging. IF we were 10 exit this business wa fire sale or shut dow, the cost would be USD 4-5 bilion, This sin addition o any payout to DoCoMo of at least abilion plus dollars. ‘The original structure of the DoCoMo transaction raises several questions about its appropriateness from # commercial or prudeaial perspostve witin the then prevailing Indian [egal framework. In ight ofall ofthis, ou strategy over the past three years has been to increase the EBITDA from Rs. 400 crores to Rs. 2500 crores, inthe hope of being a potential player in ‘consolidation ofthe industy. “Tata Power aggressively bid forthe Munda project based on low-priced Indonesian ena. As regulations changed, the losses in 2013-14 alone anourved to Rs. 1,500 eros, Given that ‘Mundra constitutes Rs, 18,000 crores of capita employed (40% of the overall company’s capital employed), this substantially depresses the retrn on capital for Tata Power as well as ‘aries the risk of considerable future impairment ‘An even more challenging situation arose in Tala Motors, both on the commercial and ppusenger vehicles. Before 2013, in order to shore up sales and market share, Tata Motors Finance extended credit with lax risk assesment, As result the NPAS mounted to being in ‘excess of Re, 4000 crores, Historically, the company had employed aggressive accounting 0 Capitalize substantial propartion of the product development expenses, creating a future lability. Beyond this, dhe Nano product development concept called fr a car below Rs. I akh, bat the costs were always above this, This rodvct has consistently lot money, peaking at RS. 11000 crores. As thee is no line of sight to profiahility fo the Nano, any tumaround strategy for the company requies to shut it down. Emotional reasons alone have Kept us aay from this ‘tual decision. Another challenge in shuting down Nano is that t would stop the supply of the Nano gliders to an entity that makes electric eats and in which Me. Tata hasasiake. (n the performance ofthe portfolio, as you are aware ftom my presentations to you in the recent pas, if we look atthe aggregate data between 2011 and 2015 and limit the analysis levee to the legacy hotspots (HCL, Tata Motors PV, Tata Stee! Europe, Tata Power Muna, ‘and Teleservices), it wil show tat the capital employed in those companies bas risen from Rs. 132,000 crores to Rs. 196,000 erores (de to operational losses, interes and capex). This igure is close tothe networt ofthe group which i at RS. 174,000 crores. A realistic assessment ol tho fir value these businesses could potentially sulin a write down overtime of about Rs 118,000 crores In the face ofthe above challenges, I hd to lake many tough decisions with sensitive care te the group's reputation as well as containing panie amidst internal and external stakeholdersDen chad fry. Apr fom hotel the group made sever exis in the ii canner UK steel operations, and of couse in smaller companies eon © logistic power Oath mere ni Stout Hagerton win are pone ion thee oan Eroup ns eas Fastive sd, Kalingangar, the largest domestic ciel eco yt Prevousy, CMP overcoming sgnicamt obstacles tht had si he me ee of aad hen ou ray note aviation str began when Me Tata esteem int hi pars wat ee PO on Ai Asia by Buin & Co Head concuced one arte inal cot Svs board has increased the capital infusion in hese pc es ofthe initial commitment. oars al ses a so aware ht ia the case of Ai Asi, ethical enzere have tac wi espe to certain wansactions as well asthe overall pecan eae cree atzatin. A recent forensic investigation revealed audulem teres oe ee Ventaramen'tg, oomexisent pares in india and Singapore Exeriive Truce her coe ei on the board of Ai Ash md ao sharcholicr fe recent ‘companies ‘To come back tothe amendenent implementation created a flux inthe decisionmaking process T ltustes, before and after Tala Sons board mestings Phe ean Without any accountability or formal responsibility invaders,nominated directors, who 1 would assume would ise thsi own independent judgment anc discharge their fiduciary duties, were reduced to mere pusimen. Asan exaniplesdue the ae {Heels (Nitin Nota nd Vijay Singh) had to leave Ta Sons board meting in ropes for almost an hour, keeping the ret of the Board witing, in order to oblain insulins Mr. Tala. Such a work pattern as als crested the ade risk of contravening insider tading ‘egulations and exposed the Trust, apart from exposing the nice polenta los Haba ‘These circumstances forced met circulate a note on corporate yovermance in oer lnly the distinct roles of Tata Trusts, Tata Sons Bord, and the Boards of the operating compasiee {cannot believe that was removed on grounds of non-performance. As you ere aware, the Nomination and Remuneration Commitice comprising Vijay Singh, Farida Khambats’ at Ronnen Sen independent decors (io of whom have weed fr mi renova ny, hd oly recently Inided and commended my performance, 4m keeping with Tata Group values, to engage employees and have a favourable impact om the communities we oper in, we launched a veluntering programme, challenging. ge ‘gmployees fo volunteer a million hours in 2015 and the result was voluntcring ef 3 vlog ‘ours, making tone of te top ten global volunteering programmes, "hope you do realize the predicament that found myself in, Being pushed ito the position of “lame duck” Chairman, my desire was fo creat an institutional framework for effective tre ‘govemance of the group. 1 believe I had to be true to myself and the best interest of the organization, While I would be lying if std I am not disappointed, Ihave a sense of pide aad dignity intact in the efforts Ihave taken to peofessionalse and insitutonalise, eparlons ‘ofthe outcome of effort, I now witness. ‘Since the developments at the Board Meeting were purported to have been inated at the instnce ofthe Trusts, fam copying the Trastes Sincerely, cms (Cyms P Mistry) CC. Trustees of Pata Trusts