Shapoorji Pallonji's Tata stake at risk over $1.2B debt repayment
What's the story
The Shapoorji Pallonji Group is staring at a $1.2 billion debt repayment due by December, with its entire stake in Tata Sons pledged as collateral. The group had refinanced some $3.2 billion of existing borrowings and now has to repay the upcoming tranche, including both principal and interest, within two months. The Mistry family holds promoter-level debt of ₹25,000-30,000 crore—about half of the group's total debt of ₹55,000-60,000 crore.
Financial hurdles
SP Group's ongoing negotiations over potential exit from Tata
The SP Group may struggle to raise the required funds for its repayment obligations, adding complexity to its ongoing negotiations over a potential exit from Tata Sons. The group holds a little over 18% stake in the company. Lenders may seek further collateral or more clarity on the SP Group's asset monetization plans, including those related to its Tata Sons shares.
Collateral concerns
Lenders' options to recover dues remain limited
The debt is fully secured against SP Group's assets, including the Tata Sons shares. However, it is unclear how invoking this pledge would help lenders recover their dues since Tata Sons shares are unlisted and cannot be sold to third parties without the Tata Group's approval. So far, the Tata Group has not shown any willingness to offer a full or partial exit for its stake in Tata Sons.
Listing position
SP Group advocates public listing of Tata Sons
The SP Group has maintained that a public listing of Tata Sons would be the most transparent and value-accretive solution for all shareholders. A listing would allow the group to liquidate its stake in the open market with adequate price discovery. Such an exit would also be more tax efficient, attracting around 12% capital gains tax as opposed to nearly 36% if Tata Sons were to buy back the stake directly.
Debt strategy
Loan secured in 2021 with a tenor of 3.5 years
A large portion of the loan is to Sterling Investments Pvt Ltd, the promoter entity of the SP Group that secured $2.6 billion in 2021 from Ares Management and Farallon Capital with a tenor of three and a half years. Sterling Investments holds a little over 9% in Tata Sons, the holding company of the Tata Group.