SP Group: Tata Sons nears deadline for share-based loans, what's the biggest challenge?

News Topical, Digital Desk : Shapoorji Pallonji Group (SP Group) faces a significant debt challenge. The group has to repay approximately $1.2 billion (approximately Rs 10,000 crore) in debt by December this year. To fund this debt, the group has pledged its entire stake in Tata Sons, according to people directly familiar with the matter. The group recently refinanced its $3.2 billion old debt and is now due to pay the first installment of the loan within the next two months. This payment includes both principal and interest.

What's the big problem?

According to experts, it will not be easy for SP Group to raise the necessary funds to repay this debt. The pledge of shares could further complicate the ongoing negotiations regarding the exit from Tata Sons. According to sources, lenders may now demand additional guarantees or a clear asset monetization plan from SP Group. Currently, this loan is secured by SP Group's assets, including Tata Sons shares. However, Tata Sons shares are unlisted, meaning they cannot be sold to an outside buyer without Tata Group's permission. Therefore, even if banks seize the pledged shares, recovery will be difficult. Banks may ask for additional guarantees or details of fundraising plans. So far, Tata Group has not made any proposal or indication to sell its stake to SP Group. According to people familiar with the matter, SP Group has consistently maintained that listing Tata Sons on the stock exchange would be the most transparent and beneficial for all shareholders. If this happens, SP Group can sell its stake in the open market, which may fetch a better price. How much is the debt burden? The Mistry family has a debt of around Rs 25,000–30,000 crore at the promoter level, which is almost half of the group's total debt of Rs 55,000–60,000 crore. Most of SP Group's loans are in the name of Sterling Investments Pvt Ltd, the group's promoter company. In 2021, it took a loan of $2.6 billion from Ares Management and Farallon Capital for a period of three years and six months. Sterling Investments holds around 9% stake in Tata Sons. Earlier this year, SP Group refinanced its outstanding debt of $3.2 billion. This process was led by Davidson Kempner and Cerberus Capital, while Farallon Capital and Ares Management also rolled over some portion. SP Group had wanted to take out a new loan from Power Finance Corporation (PFC) at an even lower interest rate, but PFC's investment committee rejected the proposal. Previously, another group company, Goswami Infratech, raised approximately ₹14,300 crore through the IPO of Afcons Infrastructure and the sale of its stake in Gopalpur Port to the Adani Group.

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