Raising money for the repayment would be difficult for the SP Group, which would make it more difficult to sell its little more than 18% share in Tata Sons.
According to persons with firsthand knowledge of the situation, the Shapoorji Pallonji Group has offered its entire interest in Tata Sons as security for the approximately $1.2 billion in debt repayments that are due by December.
The persons, who asked to remain anonymous, said that the organization, which refinanced around $3.2 billion of previous borrowings, had two months to return the next installment, which would cover principle and interest. Based on estimates, the Mistry family’s promoter-level debt is between Rs 25,000 and Rs 30,000 crore, which is around half of the group’s overall debt of Rs 55,000 to Rs 60,000 crore.
The persons said that the organization would have trouble raising the necessary money to fulfill its payback commitments, which would complicate the current talks over its planned departure from Tata Sons, in which it owns a little over 18 percent of the company.
It is Hard to Invoke a Pledge over Tata Sons Shares
They said that lenders would want further assurances in the form of extra collateral or clarification from the SP Group on its plans for asset monetization, especially those pertaining to its interests in Tata Sons. The assets of the SP Group, including the shares of Tata Sons, completely support the debt.
However, as Tata Sons shares are unlisted and cannot be sold to outside parties without the approval of the Tata Group, it is still unclear how bringing up this guarantee will aid lenders in recouping their obligations. The Tata Group has not yet made it clear that it would be open to offering the SP Group a whole or partial departure from its ownership.
Until the time of publishing, the Shapoorji Pallonji Group had not responded to an email requesting remarks.
According to people with knowledge of the situation, the SP Group has continuously insisted that the most open and beneficial course of action for all shareholders would be for Tata Sons to go public. Through a listing, the group would be able to sell its interest on the open market with sufficient price discovery. Additionally, this kind of departure would be more tax effective, garnering only 12 percent capital gains tax as opposed to approximately 36 percent if Tata Sons were to repurchase the holding directly.
Issues with Debt at SP Group
A significant amount of the loan goes to Sterling Investments Pvt Ltd, the SP Group’s promoter company, which obtained $2.6 billion from Ares Management and Farallon Capital in 2021 over a three-and-a-half-year period. Sterling Investments owns just over 9% of Tata Sons, the Tata Group’s parent company.
Prior to this, Moneycontrol had revealed that the SP Group was in advanced talks to restructure $3.2 billion in outstanding debt with a group of international alternative asset investors. Davidson Kempner and Cerberus Capital spearheaded the refinance earlier this year, with Farallon Capital and Ares Management contributing in part. Both companies carried over a portion of their aging debt.
Additionally, the company was negotiating a reduced refinance rate with Power Finance Corporation (PFC). According to one of the individuals, “PFC’s Investment Committee eventually decided not to approve the loan for unclear reasons.”
According to a previous Moneycontrol article, Goswami Infratech, another SP Group company, used the profits from Afcons Infrastructure’s initial public offering (IPO) and the sale of its Gopalpur Port interest to the Adani Group to repay about Rs 14,300 crore.