Some foreign lenders to Shapoorji Pallonji Group have asked its promoters, the Mistry family, to furnish personal guarantees and additional shares of group companies as collateral against loans taken by pledging a part of its stake in Tata Sons Ltd, two people directly aware of the matter said.
The guarantees were sought soon after the Supreme Court on Friday rejected Shapoorji Pallonji Group’s charge that Tata Sons’ controlling shareholders oppressed minority shareholders and declined to reinstate Cyrus Mistry as chairman of the Tata group holding company or grant Shapoorji Pallonji Group board representation, the people said, requesting anonymity, as the discussions are private.
The Supreme Court also refused to intervene in the matter of pledging or sale of Tata Sons’ shares held by the Mistry family and, instead, directed the two sides to work within the framework of the articles of association of Tata Sons to resolve the matter. Providing a personal guarantee would mean that the Mistry family will be liable to repay dues if Shapoorji Pallonji Group defaults.
The lenders’ new demands and the legal setback are likely to make it tougher for the cash-strapped Shapoorji Pallonji Group to raise funds to repay loans.
The court’s order also complicates Shapoorji Pallonji Group’s efforts to sell its 18.37% stake in Tata Sons, the value of which is estimated at ₹1.75 trillion by the group.
“Some time last year, the promoter entities of Shapoorji Pallonji Group had borrowed close to $500 million from two foreign banks by pledging a part of the stake, before the Tata group moved the Supreme Court and obtained an injunction in the matter, which barred the Mistry family from pledging further stake,” said one of the people cited above. “A part of the money borrowed by the promoters is now up for repayment this year and, while the lenders are open to deferring the repayment, taking into account Shapoorji Pallonji Group ’s current state of finances, they are insisting on additional guarantees.’’
“The Mistry family, however, cited the apex court order as a favourable development in its communications with lenders post the verdict,” said the second person.
“They (Mistry family) maintain that since the Supreme Court did not rule against pledging of shares, the family is well within its rights to pledge more of its stake in Tata Sons to borrow funds,’’ the second person added.
“The lenders are concerned that the pledged shares have become more illiquid than they were before the Supreme Court’s verdict, and recovery will be extremely difficult in the event of a default,” the person added.
A spokesperson for Shapoorji Pallonji Group did not respond to an email query and text messages seeking comments.
In a statement, titled Grateful for the opportunity —My conscience is clear, Mistry on Tuesday said that he hopes that the issues raised by him will prompt deeper reflection and influence individuals concerned to catalyze change.
“I sleep with a clear conscience,” Mistry said.
Mistry served as chairman of Tata Sons from 27 December 2012 to 24 October 2016, when he was abruptly ousted.
Tata Sons earned a total equity dividend of ₹24,000 crore from its group companies in fiscal year 2020, more than any other holding company in India.
Tata Consultancy Services Ltd alone contributes almost 90% to Tata Sons’ dividend income.
Tata Sons uses the income to invest in group companies such as Tata Motors, Tata Steel, Tata Power and Tata Teleservices.
Shapoorji Pallonji Group is primarily engaged in construction and is struggling to repay dues worth more than ₹22,000 crore to banks.
If Shapoorji Pallonji Group is able to sell its stake in Tata Sons or even pledge it to raise money, a large part of its debts can be repaid.
Shapoorji Pallonji Group has been trying to raise funds by selling stakes in its group companies, including Eureka Forbes, Afcons Infrastructure and Sterling and Wilson Solar, to repay its loans without much success.