India's Shapoorji Pallonji Group is eyeing a long-tenor, lower interest-bearing loan from state-owned Power Finance Corp to meet debt repayments totalling around US$1.87bn-equivalent and tide over a liquidity crisis.
Terms of the loan are still being negotiated, but are expected to be significantly more attractive than those on the conglomerate's existing debt. The tenor is likely to be at least seven years and the interest in the high single digits or low double digits, bankers said.
“We are considering giving a loan to the Shapoorji Pallonji Group,” said a source at PFC. “The tenors could be anywhere between five and nine years." The source said the interest rate should be much lower than the previous loan because of the way the proposed borrowing will be structured.
Reports in the Indian media have cited a US$1.2bn size for the borrowing, but bankers familiar with the situation said SP Group would be looking at raising much more given the attractive terms and the fact that it has a large amount of debt obligations to be resolved.
“It will be no surprise if SP Group borrows as much as it can from PFC as it will be able to address a significant portion of its maturing debt and shake the monkey off its back,” said a Singapore-based loan banker. “Borrowing from PFC will help SP Group shave off a few hundred basis points of interest whilst also terming out its debt maturities.”
The conglomerate’s unit, Sterling Investment Corp, owes around US$1.7bn (including accrued interest) to Ares SSG and Farallon Capital Management, according to bankers. The original amount of that debt from the two investors was Rs180bn, but some of it has been repaid. It is said to pay interest in the high teens and final repayment has been extended by a few months so that new debt can be raised for refinancing, the bankers said.
The debt owed to the two non-bank lenders carries collateral in the form of a stake of around 9% in Tata Sons, which in turn has investments in various Tata group entities.
Last June, Goswami Infratech, a property arm of SP Group, raised Rs143bn (US$1.7bn) through short three-year (April 2026) non-convertible debentures that also carry Tata Sons shares (another 9.185% stake) as collateral. Those notes pay no coupon during their life, but accrue interest at 18.75% compounded annually to fund a redemption premium payable on maturity.
The terms of the Goswami Infratech bonds require SP Group to pay Rs14bn to bondholders when it repays the debt of Sterling Investment (which was expected to be by May 26), or when it raises new debt for refinancing, according to a letter sent to the trustee of the bonds last week.
SP Group is expected to be able to raise less than the amount needed to repay the debt, according to the letter sent from Goswami Infratech to Axis Trustee Services. The letter said Sterling had not raised any new debt and so the “trigger event is expected to occur on May 26 2024”. Therefore, it is asking bondholders to allow it to amend the date of the trigger on the clause related to Sterling Investment’s debt from May 26 to September 30.
“The company expects to raise funds to refinance Sterling Investment's debt by September 30, hence it has requested the trustee to seek consent from debenture holders for these amendments,” according to a head of credit at a private credit firm.
For PFC, the loan to SP Group will count towards its infrastructure lending. It will be structured to ensure repayment risks are mitigated, according to the source at PFC.
“Real estate is also part of infrastructure,” said the source. “We are not into purely collateral-based funding. The collateral will be only an add-on security.”
More troubles
SP Group’s delays in debt repayments are not new. In January, Goswami Infratech triggered a step-up clause on its 18.75% April 2026 notes, which include a couple of covenants relating to the monetisation of stakes in Gopalpur Port and Afcons Infrastructure, both owned by SP Group.
The coupon was stepped up by 200bp for a brief period as the issuer was unable to sell its stake in Gopalpur Port on time to make a mandatory pre-payment of Rs15bn by December 31.
In late March, India’s largest private port operator, Adani Ports and Special Economic Zone, said it would buy a 95% stake in Odisha’s Gopalpur Port for an equity value of Rs13.49bn. SP Group is selling its 56% stake in Gopalpur Port to Adani Ports in the transaction.
Another 200bp step-up will kick in if a minimum amount of Rs70bn is not repaid by June 30 this year from the monetisation of a controlling stake in Afcons. The construction and engineering company has filed the prospectus for a Rs70bn domestic IPO comprising Rs12.5bn of primary shares and Rs57.5bn of secondary shares.
While SP Group is looking to borrow as much as possible from PFC, the IPO for Afcons is also crucial.
Care, which rates Goswami Infratech’s notes at BBB−, has not taken any action yet on the latest developments. The agency also did not reply to an email or calls regarding the impact on the ratings.
Majority consent
The threshold to amend the terms of Goswami Infratech’s bonds is not known, but institutional investors hold 90%–95% of the paper and are unlikely to force the issuer to make a mandatory pre-payment.
“What choice do the bondholders have besides agreeing to the amendment?” exclaimed the Singapore-based loan banker. “It will not serve anyone’s interests if the borrower is forced into a default.”
Nonetheless, the bonds have come under selling pressure since January as SP keeps missing the indicative cashflow or monetisation timelines. As the face value of each bond is Rs100,000, wealthy individual investors lapped up the offering in the secondary market last year at yields of 15%–16%, buying from wealth managers and intermediaries who flipped the notes at a profit.
“The yield has spiked to 20% as hardly any trades have happened in the last six months,” said an investment manager who estimated that domestic high-net-worth investors and retail investors have combined holdings of Rs12bn–Rs15bn. “There are investors who want to sell these bonds, but it is very difficult to find a buyer.” The front page of the bond prospectus clearly warned that the notes were not suitable for retail investors, but the investment manager said that the sellers had not educated investors about the risks.
Those risks could be magnified as more retail investors invest in debt. On April 30, the Securities and Exchange Board of India reduced the minimum face value of privately placed plain vanilla bonds to Rs10,000 from Rs100,000, as long as a merchant banker is appointed.
“With bonds becoming more accessible to retail investors, it is crucial to establish robust checks and balances,” said Venkatakrishnan Srinivasan, founder and managing partner at Rockfort Fincap. He cited the example of the writedown of Yes Bank’s Additional Tier 1 bonds in 2020. After retail investors lost money on the bonds, the market regulator barred them from investing in AT1s and set a minimum allotment and trading size of Rs10m for AT1s. "Implementing similar limits for high-yield bonds ensures that only investors fully comprehending the risks are involved in such products,” said Srinivasan.
SP Group did not respond to an email asking for confirmation that it is seeking to amend the bond terms.