“As is publicly known, Tata Sons’ shares are not freely transferable,” said Tata Trusts chief executive Siddharth Sharma in response to ET’s emailed queries on the Trusts’ legal position on the matter.
SP Group, promoted by the Mistry family, has pledged its entire 18.5% in Tata Sons held through two entities to secure monies from private credit funds such as Ares and Farallon. Additionally, it needs to raise funds for a separate repayment due in three months and refinance existing high-cost borrowings.
Lenders are assessing whether the shares can be pledged further as enforceability remains uncertain. They are, however, taking comfort from the fact that the shares have been pledged thrice in the past, said people with knowledge of the matter.
Shapoorji Pallonji Group has also offered additional assets as collateral and is currently in advanced talks with Power Finance Corp (PFC) to raise over $2 billion in debt.
SP Group didn’t respond to queries.
The board of Tata Trusts has been concerned over the rollover of these shares among lenders, said an executive aware of the matter. “There has also been angst over SP Group cashing in on the equity of the Tata Sons shares. But SP Group says they have a right to use it as they will, as bona fide shareholders,” another executive said.
SP Group entity Evangelos Ventures raised $1.5 billion from Ares and Farallon in 2021 and 2022. This is priced at 22% and goes up to 28% if not refinanced by March 31, 2025, when it matures. The group is exploring refinancing options with several lenders to bring down the cost.
“Refinancing above 18.75% will increase costs for the debt raised at (group company) Goswami Infratech. So, the group is in talks with PFC to refinance its debt and raise new loans at a lower rate,” said a source.
In September this year, SP Group has to make a scheduled payment of about $216 million for Goswami Infratech’s $1.7-billion raise via non-convertible bonds last year.
Subject of Debate
Tata Sons Articles of Association 57-61 regulate the transfer of shares in the event of a shareholder default, said officials close to the matter.
However, the pledged shares matter could be the subject of a legal case, as it wasn’t dealt with explicitly in the Supreme Court ruling of March 26, 2021, over Mistry’s dismissal, in favour of Tata group.
“Tata Trusts can legally challenge the group, if need be, on the shares pledge,” said Ashish Kumar Singh, partner at Capstone Legal. “The subject matter of the case before the Supreme Court was not directly related to pledge of shares, which is the reason why an interlocutory application was required to be filed to bring it to the notice of the court. Mere dismissal of the interlocutory application does not necessarily bar the parties from agitating the issue again.”
Shapoorji Pallonji Group, though, maintains there is no restriction on its ownership over the shares and the right to raise capital against them, in accordance with the Supreme Court ruling.
“Also, there have been no defaults till date and the group is committed to working on reducing its debt as early as possible,” said a person close to SP Group.
Tata Trusts may have to make the challenge before the National Company Law Tribunal or a high court, said Singh.
Once close associates, the Tata and SP groups have been opposed to each other following the late Cyrus Mistry’s ouster as Tata Sons chairman in October 2016. Since then, the Mistry family’s Tata holding has been a bone of contention.