SP Group moving to raise ₹8,000 cr by pledging equity stake in Tata Sons

Forum Gandhi Mumbai | Updated on September 21, 2021

The funding deal, with Singapore’s Farallon Capital, is to be closed over few weeks

The Shapoorji Pallonji (SP) Group is close to pledging a part of the shares it holds in Tata Sons with Singapore’s Farallon Capital to raise about ₹8,000 crore.

Sources said that the deal is expected to close over the next few weeks. Neither the SP Group nor Farallon Capital offered a comment.

The SP Group holds 18.37 per cent stake in Tata Sons. Last year, the SP Group had stated its intent to exit the Tata group’s holding company after relations between the two sides soured on Cyrus Mistry’s ouster as the Chairman of Tata Sons. However, selling this stake is problematic due to disagreements on valuation. While the SP Group has claimed a valuation of ₹1.78-lakh crore for the 18.37 per cent stake, Tatas do not agree.

Financial stress

The SP Group has been facing a massive financial stress and has been trying to sell some of its non-core assets as part of a debt restructuring deal with its lenders. So far it has managed to sell Eureka Forbes for ₹4,400 crore. Sterling and Wilson Solar, and Afcons Infrastructure are also on the block. Until these asset sales happen, the SP Group needs capital to remain a going concern. In this context, the deal with Farallon will help to a great extent. But this could also hit a legal hurdle if Tatas object to the pledging of shares.

Last year, too, the SP Group had sought to raise capital against the shares it held in the Tata Group and had also signed agreements to raise ₹3,750 crore from Canadian asset manager Brookfield. Tata Sons had then sought a stay on the pledge through a petition in the Supreme Court. While the final verdict, delivered in March 2021, had set aside a ruling by a tribunal that had reinstated Cyrus Mistry, the SP Group reckons that there is no bar on pledging the shares.

Experts’ take

Mumbai-based advocate Rahul Kamerkar said that there is no court-ordered restriction on SP Group to pledge or redeem any of the Tata shares it owns. “In September 2020, the Supreme Court had passed an interim order that status quo be maintained with regard to the Tata shares pledged by Shapoorji Pallonji. This did not affect the legality of the pledged shares, but it did restrict SP from pledging any more shares. Interim orders by definition, operate only until the pendency of the main matter. Since the main matter was disposed of in March, in the absence of there being any restriction on pledging of Tata shares by the SP Group, and the Interim Order of September 2020 ceasing to operate, at present, I see no court-ordered restriction of any sort on the SP Group being able to pledge or redeem any of the Tata shares owned by it,” he said.

However, Karan Lahiri, an advocate practising in the Delhi High Court and the Supreme Court, said: “The SP Group’s position ignores three things — first, it fails to engage with the issue of the transfer restrictions in the Articles of Association; second, it ignores that the SC implicitly favoured the Tata Group’s position on this when it granted interim relief last year; and third, it incorrectly treats Para 21.5 of the judgment as a dismissal on merits of the Tata IA (in which the Tatas succeeded during the pendency of the matter before the SC). More practically, the SP Group seems to have failed to take the SC’s hint to bury the hatchet and settle matters by exercising its exit option, set out in Para 21.4 of the judgment,” said Lahiri, under-scoring this as his opinion and not representing the views of either party or their legal teams.

Published on September 20, 2021

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