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Shapoorji Pallonji Group raises $200 mn against Tata Sons shares

This short-term finance is part of a larger round of balance sheet restructuring to reduce debt.

, ET Bureau|
Updated: Jan 14, 2020, 02.28 PM IST
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The SP Group likely needs Rs 5,000-6,000 crore to give them the flexibility to undertake group-wide M&As and divestments in order to restructure the balance sheet.
MUMBAI: The Shapoorji Pallonji (SP) Group has leaned on its stake in Tata Sons — the subject of India’s biggest corporate battle — to buy time for the liquidity-starved construction empire and raise short-term funds, said people with knowledge of the matter.

Deutsche Bank has provided $200 million (Rs 1,400 crore) as bridge financing, they said. The funds were given to Sterling Investments and Cyrus Investments, which belong to the Mistry family, against the ownership of Tata Sons shares, they said.

Cyrus Mistry has challenged his ouster from Tata Sons in October 2016 — the case is currently in the Supreme Court. The 18% stake that the Mistry family owns in Tata Sons is held through the two entities.

This short-term finance is part of a larger fundraising exercise that the Mistrys & SP Group are evaluating to deal with the squeeze. The SP Group has also initiated several divestment exercises, including selling flagship Eureka Forbes and solar energy assets.

SP Group Needs Rs 5,000-6,000 Cr
The Deutsche Bank funding is a temporary solution to meet immediate needs ahead of the asset sales, said the people cited above.

Cyrus Mistry’s office, the SP Group and Deutsche Bank declined to comment. Tata Sons didn’t respond to queries.

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The SP Group likely needs Rs 5,000-6,000 crore to give them the flexibility to undertake group-wide M&As and divestments in order to restructure the balance sheet.

Closely held Tata Sons, which controls the $111 billion conglomerate spanning more than 100 companies, is 66% owned by Tata Trusts, helmed by chairman emeritus Ratan Tata.

Sources said the Mistrys have been in talks with a diverse set of funds including KKR, banks such as Standard Chartered and nonbank finance companies (NBFCs) like Edelweiss, among others, to raise funds. Talks with KKR had advanced significantly but were inconclusive, said the people cited above.

“Multiple discussions are ongoing,” said one of those directly involved. “They are looking at different deals, structuring with different sets of investors—asset-based, project-level funding, holding company infusion that gives them options to use the money whichever way they want… This was an urgent requirement, so Deutsche Bank stepped in.”

The documentation for the financing is believed to have been finalised at the end of December.

The SP Group had informed exchanges on December 31 that the promoters had repaid another tranche of the Rs 750 crore debt owed to group company Sterling and Wilson Solar (SWSL). The Deutsche Bank funding is expected to have assisted in those repayments.

The Mistrys have been engaged in a legal battle alleging suppression of minority shareholder rights in the wake of Cyrus Mistry’s ouster in October 2016. The constitution of Tata Sons was changed in September 2017 to convert it into a private limited company from a public limited one. This freed it of the need to seek shareholder consent on crucial decisions, which could be passed with board approval.

The National Company Law Appellate Tribunal (NCLAT) had reinstated Cyrus Mistry in Tata Sons and quashed the latter’s conversion, terming it “illegal” on December 18. The Supreme Court subsequently stayed the NCLAT order in its entirety on January 10.

The Mistrys have alleged that the decision to convert Tata Group’s holding company was to choke the family’s liquidity tap. At a time when the group is facing an unprecedented liquidity crunch, being able to raise money against the holdings in the Tata Group will help immensely, said people close to the Mistrys.

The value of the Mistry family stake, as per various credit assessments for advancing money against it, is pegged at $14-20 billion. Cyrus Mistry had cited $14 billion as an estimate in the past. “Therefore, at this point, the ability to realise the full value of their ‘stored wealth’ would help the family whose main business has been construction and realty – both parched for cash,” said a Mistry family associate.

Tata Group experts said the transfer of Tata Sons shares to a third party would need board approval. As per its Articles of Association, such a transfer can only take place among shareholders. If they do not exercise the right of first refusal (RoFR), then the board can authorise a share sale, according to the persons cited.

A share pledge, however, is different from a transfer though theoretically the equity can be invoked in case of a default.

It is unclear if Tata Sons knew about the recent transactions or if the Mistrys sought any approvals.

There are various ways in which such deals can be structured, banking sources said.

“One needs a collateral but instead of direct control of the shares, lenders do use combination of covenants and structuring methods like a non-disposal undertaking or power of attorney… What matters is the effective control,” said a banker. “Here too, the transactions are with entities which in turn own Tata Sons shares, even though the value lies there.”

The SP Group sold nearly 3.9 million shares in Tata Consultancy Services (TCS) in December to raise around Rs 780 crore as part of the group’s assetmonetisation plan to pare its Rs 30,000 crore debt. The TCS share sale was undertaken “with a view to strengthen the balance sheet,” the company said last month.

What has compounded the urgency is the group’s need to pay off the debt raised from Sterling and Wilson, a commitment that had been made before its initial public offer. Sterling and Wilson got listed in August last year. The Rs 2,850 crore IPO was to have enabled the promoters to repay loans amounting to Rs 2,563 crore within 90 days of listing.

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