The Shapoorji Pallonji (SP) Group, known for its construction of the Reserve Bank of India’s Mumbai headquarters as well as the palace for the Sultan of Oman, is reportedly in discussions with lenders to restructure and partly refinance debt worth Rs 20,000 crore, which was secured against its shares in Tata Sons.

The Mistry family—which controls the engineering and construction giant—raised these funds through a bonds issue in 2021 primarily from Ares SSG and US hedge fund Farallon Capital Management under its entity Sterling Investment Corp. The bonds had a duration of three and a half years; the SP Group’s debt repayment obligations are due in May. Sterling Investment Corp. holds a stake of 9.18% in Tata Sons.

“While talks with both existing lenders are underway, there is a strong possibility that a few more global funds may pitch in to refinance the debt,” a person aware of the matter told Moneycontrol.

Last year, Goswami Infratech—an SP Group entity—raised Rs 14,300 crore through zero-coupon non-convertible debentures, or NCDs, from a consortium of global investors. These rupee-denominated NCDs were issued against pledged shares of Tata Sons and Afcons—the SP Group’s engineering, procurement and construction arm. According to Moneycontrol’s report, the SP Group had pledged its entire 18.37% stake in Tata Sons to lenders with this transaction. This means Sterling’s over 9% stake in Tata Sons too had been pledged when it raised funds from the two lenders.

Relationship status: With its presence across sectors—from real estate to solar power generation—the SP Group is known for its hot and cold relationship with the Tata Group. Ties between the two began to sour after Cyrus Mistry, scion of the Mistry family, was ousted as chairman of Tata Sons in 2016. Mistry, who died in a road accident in 2022, had been appointed as successor to Ratan Tata and chairman of Tata Sons in November 2011 after a 14-month long “search”. (Also read: The man who dared Ratan Tata.)

The rift between the two conglomerates culminated in September 2020 when the SP Group sought to sever its decades-old ties with the Tatas by offering to swap shares. At the time, the SP Group valued its 18.37% stake in Tata Sons at Rs 1.75 lakh crore—far higher than the Rs 80,000 crore that the salt-to-steel conglomerate had estimated. In the same year, the Tata Group moved the Supreme Court objecting to the SP Group pledging its shares. The apex court mandated a resolution between the parties. However, when the SP Group pledged nearly half of its shares in Tata Sons in 2021, the latter did not oppose the move. The group was Tata Sons’ biggest minority shareholder.

Cash crunch: The SP Group’s attempts to secure finances by pledging Tata Sons’ shares don’t just stem from the history between the two; it has been seeking avenues to bolster its liquidity in light of rising interest rates and to trim its debt.

One such avenue could have been Tata Sons’ upcoming initial public offering. But even that is reportedly on pause as Tata Sons is looking at restructuring its balance sheet instead to avoid a central bank-mandated listing by September 2025. The SP Group is also mulling selling a stake in Afcons Infrastructure through an IPO to raise up to Rs 8,000 crore to pare debt and fund expansion plans. For similar reasons, in September 2021, the group also sold a majority stake in its consumer durables business under the Eureka Forbes label to private equity fund Advent International for Rs 4,400 crore.

As of 30 June 2023, the SP Group’s consolidated debt stands at about Rs 20,600 crore, according to a CareEdge Ratings report. While this is down from Rs 37,170 crore as of August 2020, it is still a staggering number. So much so that in October last year, CareEdge had revised its outlook from “stable” to “negative” in anticipation of further weakening of the group’s credit profile “due to delay in tie up of adequate working capital bank limits”.