The latest funding round will help the group meet immediate debt obligations and reduce its overall financing costs that average north of 20% for several series of outstanding bonds.
Investors Closely Watching Debt Reduction Efforts
Shapoorji Pallonji Group has already, several times, rolled over a $1.1-billion debt facility from Ares SSG and Farallon, originally sanctioned in 2021.Investor sentiment, nonetheless, remains strong, and that’s largely due to the group’s sub-20% loan-to-value (LTV) ratio for the pledged collateral – the group’s Tata Sons stake. “With an LTV below 20% on Tata Sons shares, investors feel reassured despite the failed PFC deal. This low LTV offers a cushion, reducing the group’s dependence on single funding sources,” said a large bondholder.Shapoorji Pallonji Group’s ₹20,000-crore arrangement with Power Finance Corp and its listed subsidiary collapsed over risk assessment of the exposure.
The group had approached PFC for a loan via its main investment arm, Sterling Investment Corp, with Tata Sons shares as security. The loan was intended to refinance high-cost debt taken at around 20% coupon three years ago.
Despite receiving an initial sanction letter from PFC in August, the lender ultimately withdrew from the deal on high exposure risks. In an analyst call last Friday, PFC chairman and managing director Parminder Chopra said, “We conducted a detailed due diligence process, but the board decided not to proceed in the sector with high exposure. We have decided not to proceed with the loan.”
PFC directors questioned the legal constraints on transferring Tata Sons shares in the event of a default. ET had earlier reported that Tata Trusts had stated that Tata Sons shares are not freely transferable.
A Shapoorji Pallonji spokesperson did not comment. A Deutsche Bank spokesperson also did not respond to a query sent on Sunday.
Syndicate Approach
Shapoorji Pallonji Group is now exploring a consortium-based approach to financing through bonds. They are talking to multiple lenders rather than a single institution, according to another person in the know.
“The group has repaid around ₹7,000 crore in the last two weeks. And it will continue to look at fresh consortium lending opportunities,” said an official close to the development.
Those close to the discussions indicate Deutsche Bank plans to syndicate parts of the funding to other private credit funds.
The final loan amount is flexible, contingent on interest rates and investor appetite, with a blended rate between 15.5% and 16.5% targeted.
Shapoorji Pallonji Group has been working to reduce its debt burden through asset sales and public offerings. In June 2023, subsidiary Goswami Infratech raised ₹14,300 crore, with repayments tied to asset monetisation. Proceeds from the sale of its stake in Gopalpur Port to Adani Ports were used to pay down existing obligations by ₹7,300 crore. Also, another subsidiary, Afcons Infrastructure, went public last month.
Investors are closely watching the group’s debt reduction efforts, particularly as some planned asset sales have faced delays, contributing to volatility in the bond market.
Shapoorji Pallonji Group’s bonds are currently trading around a 22% yield. However, the successful IPO of Afcons has restored confidence among creditors that the group is committed to managing its obligations and pursuing a structured deleveraging path.