SP Group revisits private credit
Barely six months after closing one of the world’s largest private credit financings, India’s Shapoorji Pallonji Group is back for another borrowing of up to Rs230bn (US$2.6bn).
The three-year borrowing for Goswami Infratech, the property arm of SP Group, is the group's third jumbo private credit financing in less than three years and comes amid increased speculation over how the conglomerate will monetise its 18.37% stake in Tata Sons. The stake is valued at around US$37bn, according to a termsheet for the financing earlier in the year.
A listing of Tata Sons, which has been on the cards for a long time, could have provided a clean exit, but that process hangs in the balance. The holding company of Tata Group, which the Reserve Bank of India has classified as a top-tier nonbanking financial company, missed the central bank’s September 30 listing deadline. It surrendered its NBFC licence and reduced debt to zero to seek declassification.
“An IPO of Tata Sons would have been the easiest solution for SP Group as it would make its holdings in the Tata Group company more liquid,” said a senior corporate finance banker. “If the listing does not materialise, SP Group would have to keep refinancing its debt unless it is able to sell the stake in Tata Sons and repay its obligations.”
Selling the stake in Tata Sons is easier said than done. When Tata Sons was incorporated it had restrictive clauses with respect to transfers of its equity shares, but following a ruling from India's Supreme Court in 2021 it is now required to offer a buyback of shares at fair value to any shareholders who want to exit.
Some board members of Tata Trusts, a group of philanthropic entities that control 66% of Tata Sons, opposed its chairman Noel Tata’s attempt to broker an exit from Tata Sons for SP Group, according to Indian media reports. Tata Trusts also opposed the listing of Tata Sons due to concerns of more external scrutiny on Tata Group’s businesses such as aviation and IT services, which have seen setbacks in recent times.
It's a Mistry
However, a boardroom battle in Tata Trusts might now play out in favour of Noel Tata and SP Group. On Tuesday, Mehli Mistry was ousted from the board of Tata Trusts. Mistry was a close associate of the late Ratan Tata, former chairman of Tata Group and Tata Sons.
Mehli Mistry is a cousin of the late Cyrus Mistry, who was chairman of Tata Sons from 2012 to 2016 before being ousted after a public feud with Ratan Tata. Noel Tata, half-brother of Ratan Tata, is married to Aloo Mistry, sister of Cyrus Mistry and daughter of Pallonji Mistry, former chairman of SP Group.
Some observers believe that Mehli Mistry’s exit from Tata Trusts will pave the way for Noel Tata to help debt-laden SP Group sell its stake in Tata Sons, although others disagree.
“This may be the last leg of refinancing for SP Group,” said a DCM banker, referring to the latest private credit deal.
The corporate finance banker pointed out that if the IPO or the sale of Tata Sons shares did not occur, SP Group’s debts could keep rising.
“The three private credit financings for SP Group entities carry a payment-in-kind structure with interest paid upon maturity. The size of the debt will rise as the PIK portion gets added with each refinancing,” he said, pointing to the high-teens pricing of the deals.
“Investors remain concerned about enforceability of collateral if no settlement occurs,” said a head of a private credit firm, referring to the potential sale of the stake SP Group owns in Tata Sons.
According to the DCM banker, “the pricing on the latest could be the tightest among the three deals because sentiment has shifted from ‘if’ to ‘when’ the settlement happens”.
Structure
The structure of the latest deal is likely to mirror the first private credit financing – a Rs143bn high-yield bond for Goswami Infratech completed in June 2023, which is secured against shares representing a 9.185% stake in Tata Sons. Goswami Infratech’s bonds pay no coupon during their life but accrue annual compound interest at 18.75% to fund a redemption premium payable on maturity.
Proceeds from the new bond will be used to repay Goswami Infratech bonds and accrued interest.
According to Indian rating agency CareEdge, Goswami Infratech's bonds have Rs88.15bn outstanding. CareEdge rates the notes at BB− with a negative outlook.
On Thursday, Goswami Infratech sent a letter to the bond's trustee, Axis Trustee Services, requesting consent from bondholders to align an optional early redemption date of December 26 with the final maturity redemption date of April 30 2026.
Goswami Infratech also said that SP Group is in discussions with investors to raise secured zero-coupon bonds via a private placement to repay the outstanding notes.
In November last year, Goswami Infratech repaid around Rs70bn, including interest, to bondholders. The partial repayment was funded from the proceeds of the IPO of construction and engineering company Afcons Infrastructure and the sale of Gopalpur Ports to Adani Ports and Special Economic Zone.
The new financing follows a Rs286bn zero-coupon bond raised in May for SP Group unit Porteast Investment at 19.75%, also backed by a 9.185% stake in Tata Sons shares.
According to one source, interest on Goswami Infratech’s bonds has stepped up to 20.75% after the issuer missed some asset monetisation deadlines and covenant breaches.
Meanwhile, according to an investor, Porteast has secured waivers from its bondholders for a clause that stipulates that if the Goswami Infratech bondholders are not repaid by January 1, the interest on Porteast's bonds will also step up to 20.75%.