SP Group in talks to raise Rs 25,000 crore through unrated NCDs

Mumbai: Shapoorji Pallonji Group (SP Group) is in talks with investors to raise ₹25,000 crore through new two-year, unlisted and unrated non-convertible bonds, with pricing discussions now focusing on an internal rate of return (IRR) of 14-15%. The discussions come at a time when the group is considering a number of options to monetize its stake in Tata Sons, including through a future listing of holding company Tata Group, a defined roadmap to exit ownership by bringing in external investors such as a sovereign wealth fund, or a buyback or share swap offered by Tata Sons, people aware of the matter said. Any progress in monetizing the group’s 18.37% stake in Tata Sons is likely to reduce future financing costs.

Deutsche Bank is looking for investors to bank for the new issue.

A spokesperson for the SP Group did not immediately respond to a request for comment, while Deutsche Bank was not immediately available for comment.

The group’s previous NCD, issued about five months ago and priced at 19.75%, is currently trading around 16.5-17.0% of IRR, leading to tighter pricing conditions, experts say.

“The previous reference level of 19.0-19.5% IRR is no longer relevant given the positive developments around the stake in Tata Sons. Recent transactions have tightened and investor demand has grown,” said a person close to the development. The transaction is expected to close in February, and if no announcement is made before closing, the price could rise by around 200 basis points, but not beyond 17% IRR. SP Group’s borrowing structure depends on the value of its 18.37% stake in Tata Sons, which is pledged to lenders. Any progress towards listing Tata Sons or agreeing an exit route will support debt pricing for the SP group as it provides clarity on how it can ultimately monetize the stake and repay the debt. But the SP Group cannot independently capitalize on the commitment. Tata Sons, a privately held and closely held company, must approve any sale, investor entry, buyback or restructuring. The SP Group offers these scenarios to investors on the basis of exploratory discussions. There are two possible scenarios for SP Group’s monetization of Tata Sons’ stake. The first concerns the announcement of a timeline for the much-awaited listing of Tata Sons. Once such an announcement is made, the listing process itself could take nine to twelve months. A listing would release the lien on SP Group company Sterling Investment’s 9.1% stake in Tata Sons, changing the structure to a loan against listed shares and bringing financing costs down to market levels. Cyrus Investments holds SP Group’s remaining stake in Tata Sons.

Consideration is being given to introducing a call option for the issuer after 12 months to enable refinancing at lower interest rates once the listing path is clear.

The second scenario revolves around a monetization event jointly agreed between Tata Sons and the SP Group, where Tata Sons will either buy back shares or conduct a share swap, or there could be the entry of a sovereign wealth fund alongside the SP Group. Such a monetization event could last six to twelve months, once agreed upon by both parties. Here too, the proceeds could be used to early retire the NCDs via the twelve-month call option.

There is strong and growing interest in the NCDs from Japanese and Middle Eastern banks, financial institutions and bond investors, another source said.

Additionally, SP Group company Goswami Infratech has initiated a voluntary early repayment of a portion of its NCDs raised in June 2023 of ₹14,300 crore. It plans to redeem bonds with an outstanding face value of ₹562 crore, with total disbursements including withholding tax estimated at around ₹900 crore between December 18 and 26.