The board of state-run Power Finance Corporation (PFC) has cleared a Rs 15,000-crore loan to the Shapoorji Pallonji group companies, said people familiar with the development. It marks a breakthrough for the group’s promoters, the Mistry family, who are 18.37% shareholders of Tata Sons, as it will help them repay promoter entity debts and meet commitments made to creditors of their operating companies, the people said.
The loan will be secured against the cash flows of SP group’s real estate business and the Mistry family’s shares in Tata Sons. The tenor of the loan could be four years and would include an additional component of funding that would help them cover the interest cost for the first two years, according to the people. A formal sanction letter is likely to follow and could include certain conditions, they said.
ET had first reported in its February 21 edition that the Mistry family had approached Deutsche Bank and PFC for a loan that would help the promoter companies pay off expensive bonds which they had sold to global credit funds.
The bonds are collateralised by shares of Tata Sons and were due for redemption this month. The bonds, bearing a 20% coupon, have been rolled over with the consent of the bondholders until September.
The loan from PFC is likely to be disbursed to two SPVs floated by the Mistry family. The SPVs will use the loan proceeds to pay off bondholders. The SPVs will house the family’s shareholding in the real estate business. PFC will have a lien on the bank accounts of the SPVs, thereby giving it access to dividends from the real estate business as well as potential proceeds if the family were to sell a stake in the business.
The major operating companies run by the Mistry family are in the construction sector and include Shapoorji Pallonji and Company Limited and Afcons. The latter has filed papers with the stock market regulator for an initial public offering of shares. The company is expanding the real estate vertical which owns prized land parcels in major Indian cities.
The Shapoorji Pallonji group and PFC did not respond to ET’s queries till press time.
Tata Trusts has reservations over shares of Tata Sons being used as collateral to secure loans by the Mistry family.
ET had reported on May 29, quoting CEO Siddharth Sharma, that the Tata Trusts’ legal position was that the shares of Tata Sons were not freely transferable.
PFC has taken a legal view on the usability of unlisted shares as a security cover to grant loans, ET had reported on May 8. Tata Sons shares have been used as collateral for securing loans by the Shapoorji Pallonji group in the past and lenders including banks have held them as security, the state-owned financial institution was told by its lawyers, according to the people cited earlier.
Tata Trusts, the majority shareholders of Tata Sons, as well as Tata Sons did not respond to ET’s queries.
PFC reported its highest annual consolidated profit of ₹21,179 crore for 2023-24. It is the largest non-banking finance company group in the country and the most profitable, as per a government statement on May 15.
Several financiers have been keeping an eye on the Mistry’s promoter debts which have mounted to $3 billion. The Mistry’s ability to repay those debts could also provide flexibility to its operating companies to grow as those companies would not need to use their profits to pay dividends to shareholders and could instead plough the funds back into the business. The Mistry’s have been servicing those debts partly from the dividends they get from companies promoted by them.
“The indebtedness is only a question of time. The family’s stake in Tata Sons is worth several times what they owe anyone,” said one of the persons cited earlier, who spoke on condition of anonymity.
The Shapoorji Pallonji group has embarked on monetisation efforts to reduce debt, including the recent sale of its port in Odisha to the Adani group. Its planned initial public offering of group unit Afcons Infrastructure could help it raise about Rs 5,000 crore. The group’s real estate division plans to develop the land parcels it owns in major cities. The funding from PFC could give it time to execute those plans and reduce the overall debt burden, said the people.
