This has become imperative for the real estate-to-construction group after the collapse of its 10-month negotiations with Power Finance Corp (PFC) to raise almost Rs 20,000 crore last month, when the state-run lender pulled out due to high exposure risks.
The SP Group debt was raised against its 18.2% stake in Tata Sons, the conglomerate’s holding company.
Roadshows with potential investors are being planned by sole bookrunner Deutsche Bank in Singapore and London in the next few days, followed by other global hubs. The funds are likely to be raised through a structured instrument such as three-year, rupee-denominated, non-convertible debentures (NCDs).SP Group promoter entity Sterling Investments (SIPL) had raised $2.6 billion from Ares SSG and US hedge fund Farallon in 2021, pledging a 9.1% stake in Tata Sons and some real estate assets. These high-cost NCDs, priced in the sub-20% range, are due to mature in March 2025, requiring the group to arrange for refinancing.
The cost of borrowing will likely exceed PFC loan rates but remain lower than the 2021 issuance. Existing investors, including Ares and Farallon, who together provided almost half the facility, may participate in the new round as well.
Pricing, timing crucial
However, the success of the fundraising hinges on market timing, demand and pricing, analysts said.In June 2023, Cyrus Investments (CIPL), a wholly owned subsidiary of SP Group promoter entity Goswami Infratech, raised another tranche of Rs 14,300 crore at 18.75% against a 9.18% stake in Tata Sons as collateral. This facility —maturing in April 2026 —was the country’s biggest low-rated bond sale and was subscribed by investors such as Cerberus, Ares, Davidson Kempner, Deutsche Bank and Standard Chartered Bank, among others.
In November, the cash-strapped real estate and construction group repaid Rs 7,300 crore from the proceeds of the Afcons IPO and the sale of a stake in Gopalpur Port to Adani Ports that helped partially deleverage the balance sheet. A residual Rs 8,400 crore ($1 billion), including accrued interest, is still outstanding.
Afcons, the cash cow of the 150-year-old group, successfully closed its IPO recently, raising Rs 8,398 crore, including the pre-IPO anchor book, which witnessed participation from marquee global investors. Goswami Infratech was one of the companies that sold shares in the offering as part of the offer for sale (OFS) component.
“The group is looking to tighten the pricing compared to previous issuances, as it has successfully demonstrated asset monetisation and the IPO of Afcons,” said one of the people cited earlier.
The new issuance is expected to carry an 18-23% coupon. “While the company’s performance has improved with demonstrated asset sales, the success of the new fundraising will largely depend on the terms offered,” said another executive.
According to the NCD structure of both facilities, the payment-in-kind premium is set to increase by 2%, taking the internal rate of return higher to over 22% if the group fails to pay a quantum of the principal and interest within a stipulated deadline.
SP Group has a complex web of cross holdings–the Afcons DRHP listed 242 promoter group companies. The rated debt facilities of six SP Group entities analysed is Rs 51,500 crore, spread across banks (33%) and bonds (67%), as per an IIFL report.
SP Group didn’t respond to queries. Neither did Ares and Farallon.
The group has been reducing debt through asset sales, divesting units such as Eureka Forbes, Sterling and Wilson, roads and port assets and public listings.
Founded by Pallonji Mistry in 1865, the SP Group is one of India’s oldest diversified industrial conglomerates and has a presence in sectors such as real estate, construction, infrastructure, solar power generation and allied services for the oil and gas sector, among others. The group created parallel structures for the real estate and infrastructure units under its existing holding companies to improve operating cash flow. The group had close ties with Tata group, but the relationship had soured amid the late Cyrus Mistry’s ouster as chairman of Tata Sons in 2016.
