PFC independent directors raise concerns over ₹20,000-cr loan plan for SP Group

The board is set to take up the proposal in a meeting scheduled for 18 August.

"The loan is yet to be approved by PFC and the independent directors have raised some concerns. Once they are able to answer those queries, they can go ahead," said the first person cited above.

The three independent directors on the board have questioned the rationale behind giving the loan to SP Group’s main investment vehicle Sterling Investment Corp against their shares in Tata Sons, the holding company of India’s diversified conglomerate Tata Group, to refinance the debt taken three years ago at a coupon rate of 19-22%.

In an emailed interview to Economic Times in May, Tata Sons' chief executive officer Siddharth Sharma had made it clear that the pledged shares cannot be transferred by SP Group, which is the single-largest minority shareholder in the holding company of the Tata Group with an 18.37% stake.

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Concerns have also been raised about PFC's ability to underwrite a loan to a conglomerate, which has exposure to real estate construction and infrastructure. PFC, which is the largest financier to the power sector, has been making forays into infrastructure and logistic sectors over the past one year.

An email sent to SP Group remained unanswered till press time, while a PFC spokesperson said the company will issue a statement on Tuesday, when it unveils its June quarter earnings. 

" ₹20,000 crore is a big amount. While PFC has a strong underwriting skills in power finance, real estate and infrastructure are new exposures for the company and such proposals need to be looked at closely," said the second person cited earlier." Also, how can PFC approve a loan to refinance foreign lenders' debt?" he asked.

SP Group, controlled by billionaire Shapoor Mistry, had approached PFC for a loan in March this year. The power financier had sought legal opinion on whether the unlisted shares of Tata Sons can be used as collateral to grant loans. The real estate conglomerate has been using the Tata Sons' shares in the past to secure funding from foreign creditors.

Sterling Investment raised ₹18,000 crore via non-convertible debentures against Tata sons shares in 2021.

SP Group faces financial strain

Last year, group company Goswami Infratech Pvt Ltd (GIPL) had raised ₹14,300 crore via rupee denominated NCDs at a redemption premium of 18.75%. These funds were raised to refinance GIPL's debt and also prepay Sterling Investment's and other group debt. Investors like Cerberus Capital, Varde Partners, Canyon Capital, Davidson Kempner, as well as existing lenders Deutsche Bank, Edelweiss Special Opportunities Fund and Ares SSG had subscribed to these bonds.

Also Read: Care Ratings downgrades SP Group entity's debt

However, in both the cases, the group had breached the covenants on these bonds and sought an extension of the deadline for repayment of the outstanding dues. As a result, Care Ratings downgraded GIPL's bonds citing refinancing risks and poor operating cash flows, putting the company's financing plans at risk.

The PFC loan is crucial for the SP Group, which has been facing financial difficulties due to mounting debt and steep interest rates on its existing loans. This loan was also expected to repay the debt of high-yielding bond investors like Ares SSG, Farallon Capital, David Kempner and also domestic HNIs, who had bought these bonds sold down by wealth management firms.

Brokerage firm IIFL in a note last month said, "It is simply transferring the risk from high yielding bond investors to PFC now. A power sector-dedicated NBFC is lending (or should we say bailing out?) a construction conglomerate."

Over the past few years, SP Group had embarked on monetization efforts to reduce debt, including the recent sale of its port in Odisha to the Adani group and sale of a 40% stake in Sterling & Wilson Solar to Mukesh Ambani-owned Reliance Industries. The SP Group is also planning an initial public offering of group unit Afcons Infrastructure to raise around ₹7,000 crore. The IPO, which is expected to give the main promoter GIPL an opportunity to divest its entire 72.35% stake in the company, is yet to take off.

PFC is the highest profit making NBFC in India, which reported standalone net profit of ₹14,367 crore in FY24 compared to ₹11,605 crore in FY23. Its loan book stood at ₹4.8 trillion as on 31 March 2024.