Shapoorji Pallonji group may sell S&W stake as Tatas nix Brookfield plan

The SP group defaulted on a Rs 500-crore loan taken from its listed subsidiary, Sterling & Wilson, in June and may go for a debt recast.
With the Tatas spiking the Shapoorji Pallonji (SP) group’s plans to raise funds by pledging Tata Sons (TSL) shares, the SP group will have to look at alternative ways like selling stakes in its listed subsidiary Sterling and Wilson (S&W), putting land parcels on the market across India, and restructuring project debt.

In June this year, the group defaulted on a Rs 500-crore loan taken from S&W, and may go for a debt recast as it meets all criteria in accordance with the recommendations of the K V Kamath panel, say sources.

The group started working on an alternative strategy after the Tatas moved the Supreme Court against the conglomerate’s plan to raise Rs 3,750 crore from Canadian financial giant Brookfield.

TSL moved the top court on September 5, just a day after the SP group signed an agreement with Brookfield, it (SP group) said.

The Mistry family owns 18.5 per cent in TSL, while the rest is owned by Tata Trusts and Tata Group companies. The Tatas hold the right of first refusal on the Mistrys’ shares and have argued the family cannot pledge TSL shares without its approval.

Bankers said as the Brookfield deal would now be litigated, the SP group would have to look at selling assets. The group’s stake in S&W is worth Rs 2,200 crore as on Friday and it is scouting for buyers, bankers said.

The group flagship, Shapoorji Pallonji & Co. (SPCPL), reported standalone debts of Rs 9,284 crore as of February this year.

At the consolidated level, the external debt was Rs 33,407 crore as of March 31, 2019, against Rs 25,692 crore as of March 31, 2018.

Its figures for the financial year ended March 2020 were not available. The flagship had Rs 1,000 crore of cash on its books as of February this year.

Besides, in order to deleverage SPCPL and its group companies, the Mistry family had planned to infuse around $1 billion into the flagship company during the June quarter.

According to Cherag Balsara, an expert in commercial law, the Tatas’ move will hit the SP group’s plans to raise funds at a crucial time.

“Given the value of the SP group’s stake in excess of Rs 1 trillion in TSL, I doubt if TSL has the financial ability to squeeze out the SP group at fair value,” said he.

“Seemingly this move is an attempt to harm the company. It is tantamount to oppressing the minority shareholders, and could expose the TSL board to a potential claim of damages from the SP group,” said he.

In April, global financial powerhouse KKR had acquired SP Infrastructure Capital Company’s five operational solar energy assets for Rs 1,554 crore. The SP group used the funds to reduce its debt in its construction business. But this was not enough to meet its other commitments, considering the fact that the construction business halted after the lockdown was announced.

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