Shapoorji Pallonji group faces biggest challenge as fund flow dries up

Sterling & Wilson default is a cause of concern for lenders

A day after Sterling & Wilson (S&W) gave more time to its promoter Shapoorji Pallonji Group to repay its loans, bankers said the options before the SP Group to fund its mainstay construction and real estate businesses were getting limited.

Apart from repaying the debt of S&W and its lenders, the Group will require around Rs 2,400 crore to meet its future equity commitments till fiscal year 2022, they said.

Besides, the bankers said, the Group will not be able to raise debt by pledging its 18.5 per cent stake in Tata Sons shares due to the ongoing litigation in the Supreme Court with the Tatas, and its mainstay real estate business is down in the dumps. “The SP Group is facing a big challenge considering its margins are falling and its cash flow is drying up due to the Covid-19 pandemic. It will have to expedite asset sales and restructure loans,” said a source close to the development.

The Group was earlier planning to generate additional liquidity by raising funds through a share sale in group company, Eureka Forbes but this plan is currently under cold storage,” he said. The SP Group did not reply to queries on its financial metrics.

In April this year, the Group sold its solar energy projects to KKR for Rs 1,554 crore and managed to repay part of its debt. In the current financial year, it was planning to sell land parcels in Mumbai but slowdown in the real estate industry is making it tough for the Group to find buyers. “At present, none of the Indian real estate companies is planning to buy land parcels. The group will have to sell entire ready buildings to foreign investors who are interested in commercial real estate space,” said chief executive officer of a large non-banking financial company. The sagging performance of its listed entity, S&W, also added to its misery.

The Group will need to raise funds as its flagship SP & Co’s consolidated debt went up to Rs 33,407 crore (including mobilisation advances of Rs 4,095 crore) as of March 31, 2019, against Rs 25,692 crore reported in the previous year. Its latest numbers are not available. On a consolidated basis, the total operating income of the flagship firm grew 26 per cent to Rs 49,332 crore in financial year 2019 from Rs 39,164 crore in financial year 2018. But both operating income and its profits have slowed down in 2020 and fell further due to the pandemic.

To meet the commitments, the promoters infused Rs 1,740 crore during financial year 2019 and Rs 1,904 crore during financial year 2020 in the flagship company. They were planning to invest an additional $1 billion (Rs 7,500 crore) into the firm in the first quarter of current financial year in the flagship company, but was unable to raise the money due to the ongoing pandemic.