Noel Tata’s ascendancy boosts demand for SP Group bonds

Noel Tata, 67, was on October 11 appointed the chairman of Tata Trusts, Tata group's philanthropic arm, succeeding his half-brother Ratan Tata who died on October 9.

The Shapoorji Pallonji (SP) Group, recently downgraded by CARE Ratings from "Care BB" to "Care BB-" with a negative outlook, is witnessing an unexpected rise in demand for its bonds, senior bankers told Moneycontrol.

This rise follows the appointment of Noel Tata as the chairman of Tata Trusts, which holds a 66 percent stake in Tata Sons, the unlisted holding company of the Tata group.

The bonds of Goswami Infratech Private Ltd (GIPL), an SP Group entity, are seeing strong buying interest, particularly from domestic wealth management firms, the bankers said.

Investors are optimistic that Noel Tata’s leadership could over time ease strained relations between the Tata Group and the SP Group, which escalated after Cyrus Mistry’s removal as Tata Sons chairman in 2016.

Noel Tata, is married to Aloo Mistry, sister of the late Cyrus Mistry, strengthening his ties to the SP Group.

On October 11, the 67-year-old was appointed the chairman of Tata Trusts, succeeding his half-brother Ratan Tata who died on October 9.

At the core of this demand are GIPL's zero-coupon bonds, rated “BB-” by CARE. The bonds, listed on June 28, 2023, have a maturity date of April 30, 2026, with a coupon of 18.75 percent. Despite the high coupon rate, the bonds are trading at a discount, reflecting concerns over the SP Group’s ability to manage its debt.

The downgrade by CARE was driven by elevated refinancing risk surrounding the repayment of non-convertible debentures (NCDs) issued by Goswami Infratech.

CARE cited delays in fundraising and refinancing efforts, which, it said, increased the risk of default. To manage this, Goswami Infratech recently secured approval from lenders to defer a Rs 1,800 crore interest payment from September 30 to December 31.

Noel Tata brings hope to investors

“Noel Tata’s appointment has been welcomed by the market, and there’s a growing perception that the acrimony between the Tata Group and the SP Group will gradually ease with Noel Tata at the helm of Tata Trusts,” a senior banker told Moneycontrol on condition of anonymity.

The perception that relations could improve boosted investor confidence, particularly regarding SP Group’s 18 percent stake in Tata Sons, pledged as collateral for loans.

While the Tata Group initially contested the SP Group’s decision to pledge its Tata Sons shares, a Supreme Court ruling allowed the move. Lenders, including Cerberus Capital, Davidson Kempner Capital, Deutsche Bank, and Standard Chartered Bank, accepted the collateral. Part of the NCDs were sold to high-net-worth individual (HNI) investors through wealth management firms.

With the enforcement of pledged securities now looking more realistic, demand for SP Group’s bonds has steadily risen. “We are seeing growing interest from potential buyers for these bonds,” said another banker. “We expect some transactions to happen in the coming weeks.”

Deferred payments

The SP Group faces major financial challenges but  the market is cautiously optimistic. “The recent developments suggest that sentiment could be shifting in SP Group’s favour. If tensions between the Tata Group and the SP Group ease, this could open up several possibilities for improving SP’s liquidity situation,” a senior banker said.

One option could involve monetising part of SP Group’s 18 percent stake in Tata Sons. While this would require cooperation from the Tata Group, the banker suggested that selling even a portion of the stake could resolve many of the group’s financial issues. “For lenders, the Tata Group would be the first option if they decide to invoke the pledges and sell the stake,” the banker said, adding, “But that’s an extreme scenario.”

Improvements in SP Group’s financial standing could also come from its plans to list AFCONS, its engineering services subsidiary. The upcoming listing is expected to alleviate some of the group’s liquidity pressures. There are also plans to list its real estate division within the next two years, which could unlock significant value for the group and eliminate the need to monetise the Tata Sons stake.