SP Group renews push to monetise Tata Sons stake before listing, seeks relief from costly debt

Reports coming in for today mention that The Shapoorji Pallonji (SP) Group has once again written to Tata Sons seeking to monetise a portion of its 18.4 percent stake in the Tata Group holding firm, as it looks to mobilize liquidity and reduce its high-cost debt without waiting for a potential stock-exchange debut of Tata Sons, people with direct knowledge of the matter told Moneycontrol.

The renewed approach comes after Tata Trusts chairman Noel Tata placed before the Tata Sons board a proposal from the SP Group seeking at least Rs 25,000 crore through a partial monetisation of the Mistry family's holding.

It additionally comes against a changed regulatory backdrop. The Reserve Bank of India rejected Tata Sons' application to surrender its registration as a core investment firm in September, bringing the prospect of a stock-exchange debut back into focus and potentially opening a market-based route for the SP Group to monetise its stake.

The people cited above stated the SP Group is not keen to wait for the stock-exchange debut process to play out. The immediate priority is to unlock at least a portion of the value of its Tata Sons holding, which could allow it to pare expensive debt and subsequently refinance its remaining borrowings at a softer cost.

The urgency is additionally linked to the terms of the SP Group's latest refinancing. Lenders have been seeking progress towards a liquidity event involving the Tata Sons stake, against which the group has boosted large amounts of promoter-level debt.

Moneycontrol has written to Tata Sons and the SP Group seeking comments. The story will be updated when responses are received.

The SP Group completed a Rs 21,500-crore refinancing in July. While the transaction addressed its immediate funding requirements, it left the group carrying expensive debt.

The refinancing included around Rs 15,200 crore of three-year, indian rupee-denominated zero-coupon bonds issued by Eqyizen Investment at a yield of 18.95 percent and a $650-million bond issued by Mercury Finance at a yield of 14.5 percent.

The group is looking to eventually bring its borrowing costs down from around 18-19 percent to closer to 12 percent through refinancing. Lenders, that stated, have sought progress towards monetising the Tata Sons stake before considering another refinancing or relaxing loan-to-value requirements.

The financing additionally contains milestones linked to monetisation. A sales note reviewed by Moneycontrol earlier stated a "resolution, heads of terms for a transaction or an IPO announcement" involving Tata Sons must occur within 18 months of issuance. The structure additionally requires repayment of Rs 11,275 crore within 24 months.

The SP Group additionally faced a Rs 3,500-crore repayment obligation by the end of September relating to an earlier financing. Lenders had estimated that making the payment would bring the loan-to-value ratio on the exposure down to around 32 percent from around 40 percent.

The Tata Sons stake has underpinned several rounds of borrowing by the Mistry family over the years. In 2021, Sterling Investments boosted around $2.6 billion from Ares Management and Farallon Capital against its holding, while in 2023, Goswami Infratech boosted Rs 14,300 crore through debentures backed by Cyrus Investments' Tata Sons stake. The group has since used proceeds from asset sales and the Afcons Infrastructure IPO to reduce some of its obligations.

The Mistry family owns around 18.4 percent of Tata Sons through its investment firms, making it the holding firm's largest minority shareholder.

Efforts to provide liquidity to the SP Group have already touched the Tata Sons board. At its September 17 meeting, Noel Tata placed before the board an SP Group proposal seeking at least Rs 25,000 crore through the sale of a portion of the Mistry family's Tata Sons shares. The proposal followed discussions between Noel Tata, Tata Sons chairman N Chandrasekaran and SP Group chairman Shapoor Mistry.

Under the proposed structure, Tata Sons would acquire a portion of the SP Group holding through a selective reduction of share capital. The transaction could be carried out in two tranches over 18 months, with the number of shares determined at a minimum valuation calculated under Rule 11UA of the Income Tax Rules.

Noel Tata additionally outlined possible ways for Tata Sons to fund the transaction, including internal cash flows, monetisation of listed investments, bringing market participants into newer businesses and offers for sale in Tata firms.

The proposal is significant because Noel Tata has simultaneously argued that Tata Sons should stay privately held. Tata Trusts, which controls around two-thirds of Tata Sons, has maintained that alternatives to a public stock-exchange debut should be explored.

The SP Group, by contrast, stands to gain a clearer monetisation route if Tata Sons lists.

Tata Sons was classified as an upper-layer NBFC in September 2022. Under the RBI's scale-based regulatory framework, an unlisted upper-layer NBFC is required to list within three years of its identification. Tata Sons subsequently sought to surrender its core investment firm registration, but the RBI rejected that application in September.

While a stock-exchange debut could give the Mistry family a market-based route to sell  its holding , that stated  its latest financing carries yields approaching 19 percent, while lenders have already built a Tata Sons liquidity event into the framework surrounding the refinancing.

According to the people cited above partial monetisation before a stock-exchange debut could as a result provide immediate liquidity to reduce expensive debt while allowing the Mistry family to retain a sizeable Tata Sons holding. If Tata Sons subsequently lists, the remaining stake could potentially be monetised through the market.