Shapoorji  Pallonji nears major revamp with Mistry family as benefactors

The Shapoorji Pallonji Group, one of India’s oldest business conglomerates, is undertaking a major restructuring by creating two holding companies to house its diverse businesses, ranging from real estate and construction to oil and gas, to be overseen by children of brothers Shapoor and Cyrus Mistry, according to two people aware of the development.

As part of the reorganization, Shapoorji Pallonji Co. Pvt. Ltd will cease to operate as the holding and operating entity for group companies. The mantle of the holding company will go to S.P. Finance Pvt. Ltd and S.C. Finance Pvt. Ltd, each of which will own a sizable 47.69% stake in Shapoorji Pallonji Co. Pvt. Ltd, the people said, requesting anonymity.

Both S.P. Finance and S.C. Finance will be overseen by an advisory board with four family members, including Shapoor and his son, Pallon, and late Cyrus Mistry’s two children, Firoz and Zahan.

To be sure, Shapoor and son Pallon, had initiated the move by resigning from the board of Shapoorji Pallonji Co. on 3 January this year, only to rejoin the board after being convinced by the lenders to time the resignations to coincide with regulatory approvals of the restructuring scheme. This two-tier structure, which takes a leaf out of companies from Europe but is rare among Indian firms, was conceived by the two Mistry brothers, Shapoor and Cyrus, according to one of the two people cited above. The brothers had multiple discussions before working on putting up this structure last year, the person said. Cyrus died in a car accident in September last year, while his father, Pallonji Mistry, passed away in June last year. The rationale behind this structure is that SP Group wants to separate the responsibilities of promoters as custodians, and the management, according to the second person.

“Each vertical will not have any cross-holdings. Every cluster drives its own destiny and will be independently accountable to shareholders. The families will play more of an ownership role than that of managers,” said the second person aware of the development.

For now, SP Group is seeking regulatory and other stakeholder clearances for the reorganization, which it expects to have by 30 September. An SP Group spokesperson did not respond to queries.

“This is the right way to go forward,” said Kavil Ramachandran, professor of entrepreneurship and family business at the Indian School of Business. “Ownership should not be the criterion to decide who should operationally manage a business; it must be based on the required capabilities of the individual.”

This is the model followed by all lasting family businesses across the world, he said. “Focusing on holding company will enable the family owners to have a strategic perspective across the businesses and not get tied down to any of the strategic business units. This will avoid the formation of silos; instead, this will build synergy”.

The reorganization at the SP Group comes after the conglomerate sold a few of its businesses, including Eureka Forbes and Sterling and Wilson Renewable Ltd, and paid back ₹12,500 crore last year to its creditors as part of a one-time resolution deal without a haircut. As a result, the group has halved its debt to ₹20,000 crore.