Tata Trusts continues to oppose transfer of Tata Sons shares owned by SP Group

The chief executive of Tata Trusts told Mint in an email response to a questionnaire sent on Tuesday that Tata Sons’ shares cannot be used as collateral for fresh loans by the SP Group.

According to an executive privy to the development, Shapoorji Pallonji Group plans to use the 18.4% shares it owns in Tata Sons, the holding company of the Tata Group, as collateral to replace its current loans totalling ₹22,000 crore ($2.6 billion) that are payable by March 2025. To be sure, the shares are already pledged against these loans, and the aim is to transfer the shares to a new set of investors to raise money to repay the earlier loan.

“We do not endorse Tata Sons shares being used as collateral," Siddharth Sharma, CEO of Tata Trusts, told Mint in the email. “Tata Trusts would like to reiterate that the shares of Tata Sons are not freely transferable. All transfers are subject to the provisions set out in the Company’s Articles of Association."

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Sharma refers to the articles of association after Tata Sons decided to convert into a private company after its board sacked Cyrus Mistry as chair in 2017. Under the conversion to a private company, shares of Tata Sons cannot be transferred without its prior approval.

A few media reports, citing unnamed executives, had suggested that the Tata Group could seek a more amenable working relationship with the SP Group after Noel Tata took over as chairman of Tata Trusts. Noel is married to Aloo Mistry, daughter of the late Pallonji Mistry, the former chairman of SP Group.

The clarification from Sharma puts an end to the speculation and confirms that Tata Trusts will continue with the stance it held even before Noel became chairman.

According to a person familiar with developments in the organization, one reason behind Tata Trusts’ continued opposition is the adverse view held by the four-member executive committee overseeing operations of the eight philanthropic entities that own 65.9% of group holding company Tata Sons.

All four members are not in favour of allowing the shares of Tata Sons, pledged with current investors, to be transferred to a new set of investors, this person said on condition of anonymity.

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The four-member executive committee comprises Noel Tata, chairman of Tata Trusts; Venu Srinivasan, chairman emeritus of TVS Motor Ltd; former defence secretary Vijay Singh; and Mehli Mistry, a businessman with interests in logistics and dredging and a cousin of late Tata Group chairman Cyrus Mistry.

This executive committee filters the proposals before they are placed before the board of trustees of Tata Trusts. Earlier, Ratan Tata's stature held sway, and the board followed his decisions. Under Noel Tata's chairmanship, the board unanimously took the views after the committee placed its recommendation.

A spokesperson for the SP Group, responding to an email query from Mint, said, “We understand that the Tata Trusts in May 2024 had stated that ‘the shares of Tata Sons are not freely transferrable’. This position is consistent with the status of Tata Sons as a private company. Under the Companies Act, the shares of all private companies are not freely transferable. Any transfer of shares of Tata Sons are solely regulated by the Articles of Association of Tata Sons, where all shareholders, including the Tata Trusts are parties."

The spokesperson added that as far as the SP Group’s ability to raise capital against the pledge of its shareholding in Tata Sons, it was “settled by the Hon’ble Supreme Court vide its judgement of March 2021. Consequently, the SP Group has raised capital multiple times over the last 3 years from global investors against the pledge of its shareholding in Tata Sons".

The background

The SP Group, one of the country's oldest business conglomerates, first pledged 9.19% of Tata Sons in 2020 and then put the remaining 9.19% shares as collateral in 2021. The Group raised about ₹22,000 crore.

Sterling Investment Corp. Pvt. Ltd, an investment vehicle of the SP Group, first pledged 9.17% with Axis Bank and IDBI Bank in 2020, followed by another Group investment entity, Cyrus Investment Pvt. Ltd, pledging the remaining 9.18% stake in 2021 with Ares SSG Capital Management, a Hong Kong-based asset management firm and Farallon Capital, a San Franciso headquartered hedge fund.

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The group has been looking to raise money to refinance this debt, which it must repay to creditors by March next year as per the agreement terms of the non-convertible debentures.

SP Group planned to borrow from Power Finance Corporation as part of its efforts, but the nearly year-long discussions ended with the state power and infrastructure financing firm. PFC chairman and managing director Parminder Chopra revealed this in a post-earnings call with analysts last month.

Mint could not independently ascertain if Tata Trusts’ opposition led to the collapse of talks between PFC and SP Group.

SP Group has seen its share of mishaps after the unceremonious sacking of Cyrus Mistry as the chairman of Tata Sons in October 2016. Cyrus died in a car accident in September 2022, while his father, Pallonji Mistry, passed away in June.

The conglomerate, which houses businesses ranging from real estate and construction to oil and gas, has undertaken restructuring and sold a few companies, including Eureka Forbes, and Sterling and Wilson Renewable Ltd, as it has halved its debt to ₹20,000 crore.

In November, the Group took Afcons Infrastructure Ltd public and raised ₹8,400 crore. SP Group owns 50.2% of Afcons Infrastructure, which had ₹12,907 crore in revenue last fiscal year.

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