SP Group eyes greater privacy
Indian conglomerate Shapoorji Pallonji Group is planning to raise up to Rs282bn (US$3.3bn) from the largest ever rupee deal in the domestic private credit market, but has made some changes from its previous offering to cut down on disclosures.
The bond will be issued through a subsidiary of SP Group's Sterling Investment Corporation, and the issuer is looking to pay a yield of close to 20% for a tenor of up to four years. The bond is likely to be pledged against the SP Group's 9.185% shareholding in unlisted conglomerate Tata Sons and is also expected to be backed by a 100% guarantee from its real estate arm SD Corporation, sources said. It is being marketed exclusively to foreign and domestic institutional investors.
Deutsche Bank, which is working on the deal, declined to comment on the timeline and the potential structure. SP Group did not reply to a request for information.
SP Group is exploring whether the bond should be unlisted and unrated to reduce the compliance burden, following its experience with a similar, but listed and rated, issue for its real estate arm Goswami Infratech.
Goswami Infratech's Rs143bn April 2026 bonds, which were issued in June 2023, pay no coupon but accrue interest at an initial 18.75% compounded annually to fund a redemption premium payable on maturity. The Goswami bonds are also backed by SP Group's stake in Tata Sons as collateral.
The interest rate was stepped up a couple of times after the triggering of covenants related to monetisation timelines, caused by delays in the IPO of engineering company Afcons Infrastructure, which eventually listed in November last year, and the sale of ports assets.
Because the bonds are listed and rated, Goswami Infratech has to file disclosures to exchanges and rating agency Care every time there is a covenant trigger. The notes have Rs88.15bn outstanding and are now rated BB– by Care.
While the bonds were initially sold to institutions, some were resold in the secondary market to high-net-worth investors, who were attracted by the high yield despite warnings in the bond documentation that it was not suitable for retail investors.
When the issuer missed the scheduled dates for instalment payments, it had to seek permission from all investors, including retail investors who held only a small portion of the bonds, for an extension of the terms.
The issuer and arranger are heard to be taking necessary steps this time around to ensure that the bonds do not land in the hands of retail investors. This could include raising the minimum investment to Rs250m, said a market source.
"The term-sheet may also have clauses that require the investor to take prior approval from the issuer if they want to sell the bonds," according to the source.
While the exact format of the upcoming deal is not fully known yet, there are pre-payment clauses that may kick in at the end of three years. The pre-payment triggers are expected to be based on the covenants on the monetisation of real estate unit SD Corporation and Shapoorji Pallonji Energy, sources said.
SD Corporation is already heard to be in talks with bankers for a potential IPO after Afcons managed to complete its Rs54.3bn float last year.
Robust demand
There are expectations of robust demand from foreign institutional investors for the upcoming deal under the Voluntary Retention Route, helped by the strong collateral of Tata Sons shares and the attractive yield.
Foreign portfolio investors are subject to a minimum retention period of three years and there are no regulatory restrictions on investment amounts and residual maturity under the VRR route.
"There will be interest from a lot of foreign investors because the yield is attractive. It is around the special situation deal rates, between 18% and 22%, and the collateral of shares has a particular value," said a head of fixed income from a wealth firm.
Ares Management, Farallon Capital Management, Davidson Kempner, Varde Partners, PAG and One Investment Management are among the large foreign private credit investors which are heard to be participating in the new trade. In the domestic market, Edelweiss Special Opportunities Fund, Neo Asset Management and family offices like DSP Group Family Office are heard to be exploring investment opportunities in the trade.
Several investors in the Goswami Infratech bonds are also expected to participate in the upcoming trade.
"If this deal goes through, it's a milestone. It will be 30% of the outstanding issuance volume of the private credit market in India," the same fixed income head said.
On an aggregate basis, India's private credit market saw deals worth US$9.2bn over 163 transactions for the whole of 2024, growing by 7% compared to the previous year, according to an EY report in February.
SP Group had been hopeful of obtaining a loan of up to US$1.87bn-equivalent from Power Finance Corporation, but the potential deal fell through last year. PFC decided against providing the loan to SP Group because the state-owned finance company's board did not want to lend to a new sector after doing due diligence, according to an investor call on November 8.
The group is looking to repay the roughly US$1.7bn (including accrued interest) that bankers say its Sterling Investment unit owes to Ares SSG and Farallon Capital Management.
(Additional reporting by Prakash Chakravarti)