Mumbai: Shapoorji Pallonji (SP) Group's record $2.7 billion bond issue is finding a new class of investors. Backed by the group's stake in Tata Sons, the debt is now being offered to high-net-worth individuals (HNIs), ultra-HNIs and family offices through private wealth platforms, two people aware of the matter told Mint. These investors are thus getting exposure to the value of the holding even as uncertainty persists over when, or if, Tata Sons will go public.
Private wealth managers are parceling out pieces of the ₹21,350 crore unrated, unlisted debt issue, selling investors a future payoff tied to Tata Sons' potential initial public offering (IPO), said the people in the know.
This development comes after the Reserve Bank of India (RBI) on Thursday retained the Tata Group holding company in its list of upper-layer non-banking financial companies (NBFCs) in its revised scale-based framework, doing little to dispel uncertainty over its IPO plans. The non-banks are classified based on their size, activity and perceived risks, with those in the top slot mandated to go public, facing greater regulatory scrutiny than the others.
The wealthy individuals investing will, however, be in trouble in the case of a default since Tata Sons' listing is not assured and the SP Group’s shares in it are not transferable.
Siddharth Sharma, chief executive of Tata Trusts, had told Mint in December 2024 that it does not endorse Tata Sons' shares being used as a collateral by the SP Group to replace existing loans. He had said Tata Trusts would like to reiterate that the shares of Tata Sons are not freely transferable and transfers are subject to the provisions set out in the Company’s Articles of Association.
The secondary sale
Wealth management firms, such as LGT Wealth India, JM Financial, and Nuvama Wealth Management Ltd, among others, are offering minimum ₹10 crore ticket sizes in the debt instrument issued by Equizen Investments Pvt. Ltd, a wholly-owned special purpose vehicle of the SP Group promoters, to HNIs, ultra-HNIs, and smaller family offices, the sources said.
“Anchor investors commit at the primary yield of around 18.95–19.05% on the three-year zero-coupon rupee bonds. Because these are privately placed, illiquid instruments, some of those anchor holders don’t want to carry the full ticket to maturity, so they sell down part of their allocation to those who couldn’t get primary access,” said one of the sources cited above. “The seller pockets a spread by pricing the sale at a lower yield than what they paid, say 18.5%.” Bond yields move inversely to prices.
Queries sent to the SP Group and the above-mentioned wealth management firms did not elicit a response until press time.
Bond structure
Last month, the SP Group raised ₹21,350 crore by issuing unrated, unlisted, secured, zero coupon, redeemable non-convertible debentures of Equizen Investment Pvt. Ltd, a promoter group entity of the SP Group. Deutsche Bank, along with Sageoak Capital, Cerberus Capital, Burlington Loan Management and Varde Holdings, emerged as the top investors in the $2.7-billion bond issue, Moneycontrol reported at the time.
According to the offer document reviewed by Mint, the instrument carries a three-year tenor from the deemed date of allotment and a face value of ₹1 crore per debenture.
The debentures are backed by an exclusive pledge over Cyrus Investments’ 9.185% direct stake in Tata Sons, as well as a 25% stake in Afcons held by Goswami Infratech. Additional security includes a 100% share pledge over both the issuer and Cyrus Investments, along with a charge on all issuer assets and Tata Sons dividend flows.
The SP Group, which has faced repeated stress cycles over the past few years, has relied heavily on refinancing, asset sales, and private credit markets to meet its obligations. It has sold Eureka Forbes, the Gopalpur Port in Odisha and several real estate assets to repay bondholders. It still owes a substantial amount to bondholders.
Underwriting an IPO?
The investments come with significant risks, said industry experts. “Tata Sons' continued presence on RBI's upper layer list, with its de-registration application still pending, is far more than a regulatory technicality, it bears directly on Shapoorji Pallonji Group's balance sheet,” said Prakash Agarwal, partner at Gefion Capital.
“Should the RBI approve deregistration (as a core investment company or CIC) and Tata Sons remain unlisted, the primary exit route underpinning SP Group's refinancing strategy would disappear, turning a regulatory approval into a credit event risk for bondholders who are, in effect, underwriting an IPO that may never happen,” Agarwal said.
That said, reported discussions around a share swap exchanging SP Group's Tata Sons stake for shares in listed Tata group companies could offer an alternative liquidity path, though arriving at a mutually-acceptable valuation for an unlisted holding company stake is likely to remain a contentious sticking point, he added.
“Another point that needs to be considered is while the security buffers are fairly high, and even under delayed liquidity possibility, allows enough cushion for refinancing even at high yields, any black swan event making extreme tight market liquidity conditions could pose risk to refinancing,” Agarwal said.