Tata versus Mistry: Lenders hold out hope on Supreme Court verdict

While SP group sources said the verdict and debt rejig plans are unrelated, lenders said the group will be able to raise substantial sums if the SC allows it to pledge its shares in Tata Sons

Indian lenders are waiting on the Supreme Court’s judgment, expected by month end, in the litigation between the Shapoorji Pallonji Group and the Tatas and feel a verdict in favour of the former will open up new funding avenues for the construction major.

Several companies of the SP group applied for debt restructuring before the December deadline in accordance with the recommendations of the K V Kamath panel for companies affected by the Covid-19 pandemic.

In the last few months, the group flagship, Shapoorji Pallonji & Construction (SPCPL), did not make any debt repayments to lenders as the one-time restructuring process had already been initiated. In September, dues to Union Bank of India were not paid, despite availability of liquid funds in the form of free bank balances of Rs 530 crore and unused debt lines of Rs 400 crore at the standalone level.

While SP group sources said the SC verdict and debt restructuring plans are unrelated, lenders said the group will be able to raise substantial sums if the SC allows it to pledge its shares in Tata Sons. 

The Mistry family owns 18.5 per cent stake in Tata Sons, while the rest is owned by Tata Trusts and Tata group companies. During the hearing, while the Tatas have estimated the value of the Mistrys’ stake at Rs 80,000 crore, the Mistrys are expecting Rs 1 trillion more — taking into account the recent rise in share prices.

Last April, global financial powerhouse KKR had acquired Shapoorji Pallonji Infrastructure Capital’s five operational solar energy assets for Rs 1,554 crore. The group used the funds to reduce its debt in its construction business. But this was not enough to meet other commitments, considering the entire construction business came to a grinding halt after the central government imposed the nationwide lockdown and sales fell to an all-time low. The group later tried to pledge its stake in Tata Sons but the Tata group moved the SC and stopped the fund-raising deal.

SPCPL has defaulted on repayment of loans to several banks, including to its listed subsidiary Sterling and Wilson. Another source said the group may look at selling stake in Sterling and Wilson worth Rs 2,200 crore, land parcels and restructure its debt at the project level. In addition to the cash flow stress due to Covid’s impact on operations, promoter fundraise planned to be completed in the first quarter of this fiscal year was delayed and, hence, the urgency to complete deals. 

Bankers said Shapoorji Pallonji & Co reported debt of Rs 9,284 crore as on February 29, 2020, while at the consolidated level the external debt was Rs 33,407 crore as on March 31, 2019, against Rs 25,692 crore as on March 31, 2018.