The Shapoorji Pallonji (SP) Group’s 18.4% stake in Tata Sons has become the focus of discussions with the Tata Group as the debt-laden group looks to raise liquidity and manage its borrowing costs, reported Moneycontrol.
Tata and SP Group have held several rounds of discussions over a possible purchase of part of the stake. Other options, including monetising Tata’s listed holdings and bringing in external investors, have also been explored. No concrete transaction has been agreed upon so far.
The discussions come as SP Group faces pressure from lenders after completing a Rs 21,500-crore refinancing in July. Lenders want to see tangible progress on monetising the before considering another round of refinancing or further relaxation of loan-to-value requirements.
SP Group has a repayment obligation of around Rs 3,500 crore due by the end of September, while its overall borrowings are estimated at more than Rs 50,000 crore across various entities and instruments.
One option being considered is for Tata Sons or other Tata Group entities to buy part of SP Group’s 18.4% holding in Tata Sons, as per the report.
Another possibility is for Tata Sons to monetise some of its holdings in listed Tata companies and use the proceeds to facilitate a transaction with SP Group.
Tata Sons has also held preliminary discussions with external investors, including global private equity firms and sovereign wealth funds, over possible investment in the holding company. These discussions remain at an early stage and have not resulted in a concrete proposal.
A remains another potential exit route for SP Group. However, Tata Trusts chairman Noel Tata has so far favoured retaining Tata Sons as an unlisted company.
An external investor would also need an eventual exit route. That could involve a future listing of Tata Sons, a buyback of the investor’s stake or another mechanism agreed between the parties.
For lenders, an agreement between Tata Sons and SP Group may not by itself be enough.
They want to see tangible progress towards monetising the stake before agreeing to another refinancing or relaxing existing loan-to-value requirements.
“The lenders would want to see an actual transaction or demonstrable progress towards one. A mere agreement may not suffice,” a person aware of the discussions told Moneycontrol.
This puts the Tata Sons stake at the centre of SP Group’s efforts to strengthen its finances. A transaction could provide liquidity and help the group eventually refinance its expensive borrowings.
SP Group completed a Rs 21,500-crore refinancing in July, addressing its immediate funding requirements but leaving the group with expensive debt.
Its current borrowing costs are around 18-19%, and the group is looking to bring them down to around 12% through a future refinancing.
However, the financing comes with a ‘make-whole’ provision for around 18 months, making an early refinancing expensive. The period is expected to expire around June 2027.
That gives SP Group time to work towards a lower-cost refinancing, but lenders are looking for progress on the Tata Sons stake before offering further flexibility.
The immediate challenge is a repayment obligation of around Rs 3,500 crore due by the end of September.
Failure to make the payment could potentially be treated by lenders as an event of default. The payment relates to an earlier financing arrangement and was to be made from the proceeds of the July refinancing.
SP Group’s total borrowings are estimated at more than Rs 50,000 crore across various entities and instruments, with exposure spread across domestic and international lenders, bond investors and private-credit funds.
That makes the Tata Sons stake an important potential source of liquidity as the group works to meet its repayment obligations and reduce its cost of borrowing.
SP Group owns 18.37% of Tata Sons through two Mistry family entities, making it the holding company’s largest minority shareholder.
The stake has been central to several financing exercises undertaken by SP Group and remains one of its most valuable potential assets.
For SP Group, selling part of the holding could generate liquidity. For Tata Sons, buying the stake would require substantial funding.
An external investor would provide another potential source of capital but would introduce a new shareholder into Tata Sons and create the question of how that investor would eventually exit.
A listing of Tata Sons could offer a market-based exit for SP Group but would also change the closely held structure of the holding company.
The discussions have also acquired a new dimension following Tata Sons chairman not to seek a third term.
Chandrasekaran will remain chairman until his current term ends on February 20, 2027. Tata Sons will subsequently have a new chairman, who could have an important role in determining the group’s approach towards the SP Group stake.
Representatives of Tata Trusts chairman Noel Tata have participated in the discussions. Chandrasekaran was involved in some of the earlier talks, while Tata Sons Executive Director and Group CFO Saurabh Agrawal also participated at an earlier stage.
The leadership transition therefore adds another layer to negotiations that are already complicated by the competing interests of SP Group, Tata Sons and its lenders.
Despite several rounds of discussions and multiple structures being considered, the two groups have yet to reach a concrete agreement.
For SP Group, the stakes are high. It needs to manage a large debt burden, meet its near-term repayment obligations and eventually refinance its expensive borrowings at a lower cost.
For lenders, the priority is to see whether the group’s Tata Sons holding can actually be converted into liquidity.
For now, the 18.4% stake remains the key asset around which the negotiations are revolving — but there is no deal on the table yet.