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    Deutsche Bank, Cerberus to lead $1.7 billion credit raise by Shapoorji Pallonji promoters

    Synopsis

    US hedge fund Davidson Kempner (DK), Canyon Capital Partners and Varde Partners have also agreed to a three-year private credit line, with each contributing $200 million. Canadian pension fund Omers is also expected to join with $100 million while the rest will be distributed among smaller funds.

    1ETtech
    SP Group will be borrowing against Tata Sons shares held by the Mistry family that are valued at $25 billion.
    Deutsche Bank (DB) and Cerberus Capital Management, a special situations specialist, are leading the $1.7 billion credit raise by the promoters of Shapoorji Pallonji (SP) Group, the Mistry family. Deutsche Bank is also book runner and lead arranger of the capital raise along with Standard Chartered Bank (SCB). Deutsche Bank and Cerberus are finalising terms to fund $400 million each, said people in the know.

    US hedge fund Davidson Kempner (DK), Canyon Capital Partners and Varde Partners have also agreed to a three-year private credit line, with each contributing $200 million. Canadian pension fund Omers is also expected to join with $100 million while the rest will be distributed among smaller funds.

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    Standard Chartered Bank was also in discussions to join the consortium but with the credit book being covered, it has chosen not to put in any money, said the people cited above. This will be among the largest private credit raising exercises by an Indian corporate this calendar year.

    SP Group will be borrowing against Tata Sons shares held by the Mistry family that are valued at $25 billion.

    Shares of the group's cash cow - the engineering, procurement and construction company Afcons - and one of the ports it owns will also be used as collateral against the three-year funding.

    Deutsche Bank, Standard Chartered, Davidson Kempner, Varde and Cerberus, Omers declined to comment.

    Mails sent to Canyon Capital and SP Group did not generate a response till the time of going to press.

    Documentation is underway for a June closure, added one of the persons cited above.

    Deutsche Bank, which has had a relationship with the SP Group for years along with SCB, already has a $300 million exposure to the group that's expected to be rolled over.

    The borrowing will be through non-convertible debentures tied to the pledged shares. The bonds are likely to be junk rated, hence the high yield of over 20%, including withholding tax. ET was the first to report on the fund raise in its April 6 edition.

    The two Mistry family holding companies - Sterling Investments and Cyrus Investments - that each hold 9.18% of Tata Sons shares will in turn provide corporate guarantees and lock-in covenants against the Tata Sons shares.

    In the past, Fallaron and Ares-SSG had loaned $1.7 billion to Sterling Investments under similar terms by pledging Tata Sons shares. This time, the money is being raised against the shares held by Cyrus Investments to pay off promoter-level debt. The total promoter-level debt is said to be $3.5 billion. The operating companies have another $3 billion debt.
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    Last year, SP Group sold water purifier company Eureka Forbes to Advent International and also divested Sterling and Wilson Renewable Energy to Reliance Industries. Following this, SP Group repaid $1.5 billion to lenders.

    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 recently 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 the Tata Group in the past but relations soured after the late Cyrus Mistry was ousted as chairman of Tata Sons in 2016. The two sides fought a courtroom battle, which went in favour of the Tata Group. As per the ET report, the group has repayments maturing to the tune of $750 million by the end of the current year.

    Shapoor Pallonji & Co. Pvt. Ltd (SPCPL), the holding company of the 150-year-old SP Group, exited its one-time restructuring (OTR) plan in FY22 with the repayment of debt ahead of schedule. It did this through the infusion of funds by promoters, proceeds from the monetisation of assets and a fresh term loan. SPCPL had sought the OTR in September 2020 under the Covid relief framework regulations of the Reserve Bank of India (RBI).

    As part of the OTR plan, the group agreed to divest key assets and businesses, including its stake in Eureka Forbes, Sterling and Wilson Solar, Afcons Infrastructure and land parcels besides raising Rs 10,332 crore to repay its loans after the moratorium. The proceeds from the proposed monetisation of assets will be utilised towards prepayment of loans worth Rs 9,348 crore.



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