In a move that has drawn close scrutiny from the Tata Trusts and Tata Sons, the Shapoorji Pallonji (SP) Group is endeavoring to secure a staggering ₹20,000 crore from state-run institutions to alleviate debt accrued against stakes in the Tata Group holding company. With SP Group, led by the Mistry family, holding an 18.37% stake in Tata Sons, entirely pledged as collateral for loans, the situation has prompted careful observation from the Tata entities, which maintain a controlling 66% ownership of the holding company.
Discussions within the Tata Trusts and Tata Sons revolve around ensuring that the institutions approached for funding are cognizant of the provisions outlined in the Tata Sons Articles of Association, particularly sections 57-61, which regulate share transfers in the event of default by a shareholder. According to sources familiar with the matter, any transfer of shares necessitates board approvals, making it a pivotal aspect for lenders to consider.
Lenders, particularly those subject to local regulations, are urged to assess the risks associated with the inability to transfer or sell pledged securities in the event of default, potentially leading to legal entanglements with Tata Sons. The nature of the underlying security prompts lenders to meticulously evaluate the compliance of such loans with local regulations.
The rift between the two entities emerged following the ousting of Cyrus Mistry as Tata Sons chairman in October 2016, subsequently intensifying due to the SP Group’s financial predicaments. Despite assertions from the SP Group that default is not a concern and there are no restrictions on its Tata Sons equity, lenders are cautious, given the intricacies of share transfer regulations and existing legal disputes.
While mainstream lenders hesitate to intervene due to their affiliations with the Tata Group, there is also reluctance within the Tata Group to engage in further legal confrontations with the SP Group. Amid these dynamics, discussions persist regarding the refinancing of existing debt, with stakeholders keenly observing developments in the financial landscape.
Recent endeavors by SP Group units, such as Goswami Infratech Pvt Ltd, to raise funds through bond sales have garnered attention, with the proceeds aimed at refinancing debts and leveraging assets to meet obligations. However, the intricacies of such transactions, including the pledging of Tata Sons shares, remain subject to ongoing scrutiny and legal complexities.
Past legal battles, including disputes over share pledges and valuation, underscore the intricacies involved in resolving conflicts between the two conglomerates. With the Supreme Court’s final order emphasizing the need for fair compensation, the dispute lingers, adding layers of complexity to the financial landscape.
As stakeholders navigate these challenges, the intricacies of share pledges, debt refinancing, and legal disputes continue to shape the relationship between the Tata Group and the SP Group, with each maneuvering within the bounds of regulatory frameworks and legal precedents.
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