The Shapoorji Pallonji (SP) Group is set to issue Rs 25,500 crore in bonds against its stake in Tata Sons, marking a crucial step in its refinancing strategy. The bond terms require either a Tata Sons IPO or a settlement with SP Group within 18 months, aligning with recent RBI regulations that push for public listing of large NBFCs.
The Reserve Bank of India's (RBI) new classification for systemically important non-banking financial companies (NBFCs) has put Tata Sons in the spotlight. With assets exceeding ₹1.75 lakh crore, Tata Sons falls under the upper-layer NBFC category, necessitating a public listing. This move has sparked internal debates among Tata Trusts' trustees, with some supporting a listing as a positive outcome.
The bond issuance by SP Group, through Eqvizen Investment, involves zero coupon, unlisted, and unrated non-convertible debentures (NCDs), with Cyrus Investments pledging Tata Sons shares as collateral. The financing includes a deleveraging covenant requiring repayment of at least Rs 13,500 crore within 24 months, with failure to meet this obligation constituting a default event.
“The bond's terms themselves acknowledge that monetisation of the Tata Sons stake is central to repayment.”
A banking industry official
The RBI's clarification on indirect public funds has significant implications for Tata Sons. It defines public funds as including money received through associates and group entities with access to public funds, thereby categorizing Tata Sons under this framework. This clarification was reinstated in the RBI's updated circular effective July 1.
The SP Group's bond issue is part of a broader refinancing effort, initially delayed due to market volatility from geopolitical tensions. This refinancing aims to manage existing debt obligations, with the bond issue set to launch on Monday and settlement expected the following week.
“RBI had also clarified this issue in FAQs dated April 29 that if a group company has invested in an NBFC and it has access to public funds, then such an NBFC will be considered to have access to public funds.”
An investor in the existing series of SP Group bonds
Background
The potential listing of Tata Sons and the SP Group's bond issuance come at a time when Indian government bonds are on the verge of inclusion in Bloomberg's Global Aggregate Index. This development is expected to attract significant foreign investment into the Indian debt market.
The outcome of this bond issuance and the potential listing of Tata Sons could significantly impact the financial landscape, especially in light of the anticipated inclusion of Indian government bonds in Bloomberg's Global Aggregate Index. Investors and market analysts will be closely watching these developments, which could lead to substantial passive inflows into the Indian market.
