Mumbai: Tata Trusts has officially stated that Tata Sons shares cannot be transferred, expressing concern over Shapoorji Pallonji (SP) Group’s plans to use these shares to refinance over $2 billion in debt. Tata Trusts, which owns 66% of Tata Sons, is worried about potential legal issues with lenders if SP Group defaults.
“Tata Sons’ shares are not freely transferable,” said Tata Trusts chief executive Siddharth Sharma in response to ET’s questions.
The SP Group, led by the Mistry family, has pledged its entire 18.5% stake in Tata Sons to secure funds from private credit sources like Ares and Farallon. They also need to raise funds for another repayment due in three months and to refinance existing high-cost loans.
Lenders are uncertain about the enforceability of the pledged shares but are reassured since these shares have been pledged three times before, according to sources.
SP Group’s Financial Moves
The SP Group has offered additional assets as collateral and is in advanced talks with Power Finance Corp (PFC) to raise over $2 billion in debt. The SP Group did not respond to requests for comment.
The board of Tata Trusts is worried about the rollover of these shares among lenders, said an executive familiar with the matter. “There is also concern about the SP Group using the equity of Tata Sons shares for their benefit. But the SP Group argues they have the right to use it as shareholders,” another executive added.
The SP Group’s Evangelos Ventures raised $1.5 billion from Ares and Farallon in 2021 and 2022. This loan, priced at 22%, will increase to 28% if not refinanced by March 31, 2025. The group is exploring options with several lenders to reduce costs.
“Refinancing above 18.75% will increase costs for debt raised by Goswami Infratech. So, the group is in talks with PFC to refinance its debt and secure new loans at a lower rate,” said a source.
In September, the SP Group must make a $216 million payment for Goswami Infratech’s $1.7-billion raised via non-convertible bonds last year.
Subject of Debate
The Tata Sons Articles of Association 57-61 govern the transfer of shares if a shareholder defaults, said officials.
However, the issue of pledged shares could become a legal case since it wasn’t directly addressed in the Supreme Court’s March 26, 2021, ruling favoring Tata Group over Mistry’s dismissal.
“Tata Trusts can legally challenge the SP Group on the share pledges,” said Ashish Kumar Singh, partner at Capstone Legal. “The Supreme Court case didn’t directly address share pledges, which is why a new application would need to be filed to bring it to the court’s attention. The dismissal of the previous application doesn’t stop parties from raising the issue again.”
The SP Group argues there is no restriction on their ownership of the shares or their right to raise capital against them, per the Supreme Court ruling. They emphasize there have been no defaults and they are committed to reducing debt as soon as possible, said a person close to the SP Group.
Tata Trusts may have to challenge this in the National Company Law Tribunal or a high court, added Singh.
Once close associates, the Tata and SP groups have been at odds since the late Cyrus Mistry was removed as Tata Sons chairman in October 2016. The Mistry family’s stake in Tata Sons has been a contentious issue since then.
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