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As Indian infrastructure conglomerate Shapoorji Pallonji Group (SP) tests appetite for a planned $2.5bn-equivalent fundraising, investors are keeping a close eye on the company’s long-running shareholder dispute with Tata Group.

Any progress on this sticking point could benefit SP’s upcoming refinancing by as much as 375 basis points.

At the center of the tussle is SP’s minority shareholding in Tata Sons, recently valued at $37.2bn. Amid stretched liquidity, SP aimed to pledge its stake in Tata Sons to raise debt — however, Tata argued SP doesn’t have the right to do so given Tata itself has the right of first refusal in the event of a share transfer.

Failure to resolve the dispute threatens not only serious financial risk to SP but also reputational risk for both companies. Underscoring the gravity of the dispute, India’s supreme court has had to weigh in, as have members of the nation’s cabinet.

Since the supreme court ruling in March 2021, and amid some personnel changes at the top of the Tata empire, SP has now tapped the private credit market to refinance and borrow more against its stake in Tata Sons. Meanwhile, there are signs from Tata that it may soon work with SP to find a solution that would avoid some of the more serious consequences for each company.

“Finally, there's some light at the end of the tunnel,” an SP bondholder told 9fin, adding there seems to be a genuine effort by Tata Trusts’ new chairman Noel Tata to resolve the dispute.

9fin sources said the tussle could soon culminate in one of four scenarios:

Tata Group buys back some or all of SP’s stake, providing SP much-needed liquidity

Tata Group allows SP to sell its stake to an institutional investor

Tata Sons goes public, allowing price discovery for SP’s stake

Tata Sons is split in two: one unit holding listed Tata Group companies, with the other housing unlisted businesses

Each scenario, however, presents advantages and challenges for both sides.

After years of boardroom disputes, it’s been change at the top of Tata that’s driven some of the recent optimism.

Noel Tata took over as chairman of Tata Trusts, the majority owner of Tata Sons, after patriarch Ratan Tata passed away in October last year. The first signal that peace may be on the horizon: Noel Tata’s wife, Aloo Mistry, is the sister of SP chairman Shapoor Mistry.

A second potential move toward a more amiable relationship came this week, when the late Ratan Tata’s confidante Mehli Mistry also departed Tata Trusts. 9fin sources said this is expected to strengthen Noel Tata’s authority and give him greater flexibility to resolve the SP dispute.

SP’s 18.38% stake in Tata Sons earned its $37.2bn valuation in May, when the infrastructure conglomerate raised INR 286bn ($3.4bn) in a record-breaking issuance from investors including Ares, Farallon, Cerberus and Davidson Kempner. The yield on that debt was reported at 19.75%.

To inject liquidity into SP and help it lower some of those borrowing costs, the Tatas would be looking at buying back shares worth $7bn to $8bn, according to a 9fin source. However, to finance such a buyback, the Tatas themselves may need to either borrow from banks or sell shares in their own listed flagship companies, such as Tata Consultancy Services, the source added.

The second option would be to bring in a respected, long-term institutional investor or a sovereign wealth fund as a shareholder in Tata Sons, 9fin sources said. The incoming investor could buy part of SP's stake to provide it much-needed liquidity.

The downside here is that this option may loosen Tata Sons’ closely held structure. Additionally, the new investor may have its own expectations on returns, the sources said. An investor may also seek to exit within a few years.

The preferred option for SP would be that Tata Sons becomes a publicly listed company. This would be the “cleanest” solution for SP as it would lead to a fair price discovery of the value of its Tata Sons stake, one of the sources said.

SP has some support for this option from the Reserve Bank of India which, as banking regulator, has classified Tata Sons an “Upper-Layer” Non-Banking Financial Company — a denomination that came with an order to be publicly listed by September this year.

Tata Trusts has opposed the public option though as it could interfere with its philanthropic pursuits, and would open the holding company to greater public scrutiny. As such, Tata Sons has sought to de-register as a Core Investment Company to avoid the RBI’s mandatory listing rule. The RBI is yet to make a final decision on that request.

This would break Tata Sons into two entities — one holding listed Tata Group companies and the other housing unlisted businesses, one bondholder told 9fin.

Under this scenario, SP would receive proportional stakes in the listed entities, which it could then use to secure cheaper bank financing and repay higher-cost debt, the source said. Debt backed by shares of a listed Tata company could carry interest rates as low as 9% in rupee terms, the person added. The two sides could also agree on a phased divestment of those listed shares if SP chooses to gradually exit its holdings.

Regarding the unlisted businesses, the two sides could agree on a framework for value realization through either an IPO or a stake sale to a third party, the source said. Key unlisted assets within the Tata Group include its airline, insurance, and semiconductor ventures, the person added.

That process, however, would be a mammoth exercise. It would involve issuing new shares across 29 listed Tata companies and would require approval from minority shareholders in each, according to one of the sources cited above. Rather than going through such an elaborate exercise, it might be simpler to list the holding company itself, the source added.

The rewards of “constructive dialogue”

Tata Trusts is under no obligation to provide SP an exit from Tata Sons, said Bharat Gupta, founder of research firm Au-RRange Ventures and former strategy and transactions partner at EY India. However, Tata “may do it to cut down the negativity and bad press emanating out of SP’s desperation for liquidity.”

As 9fin reported recently, SP is meeting investors in Singapore this week to gauge interest in a potential INR 220bn ($2.5bn) rupee bond issuance slated for early 2026.

That potential deal is being arranged by Deutsche Bank and aims to refinance SP’s INR 143bn senior secured non-convertible debentures (NCDs), yielding 18.75%, which was issued in June 2023 by group entity Goswami Infratech. That debt matures in April 2026. If completed, the new transaction would be India’s second-largest single-tranche high-yield INR bond, following SP’s own record-setting issuance earlier this year.

In its meeting with investors in Singapore, SP is pitching the new deal at 12% PIK yield in USD terms, which translates to 15%-16% in rupee terms, a noteholder and a buyside source said. If both parties demonstrate “constructive dialogue” on dispute resolution over the next three-to-four months, the bondholder said, then SP may achieve its target pricing.

SP may also shorten the make-whole period on the proposed bonds to 12 months, from 18 months for its Goswami bonds, in anticipation of a quick resolution, the source added.

To be sure, not everyone is sold on the potentially lucrative yields tied to SP’s bonds. One local fund manager chose to stay away from SP’s debt raise because of what they described as the conglomerate’s lack of sufficient debt-servicing capacity, coupled with limited cash flows and collateral that is both restricted and difficult to enforce.

“We are not comfortable with the structure,” the manager said. “It’s a hope trade. The hope that Tatas will give a fair exit to SP.”

Tata Group and SP did not respond to requests for comment.

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