Tata Group in Talks with Shapoorji Pallonji Group to Unlock Liquidity from Tata Sons Stake

The Tata Group is exploring options with the Shapoorji Pallonji Group to unlock liquidity from its 18.4% stake in privately held Tata Sons, according to people familiar with the matter. Proposals include a potential swap of shares in listed Tata companies such as Tata Power, a Tata Sons buyout financed by overseas banks, or a sale to a global external investor.

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The Tata Group is in talks with its biggest minority shareholder on proposals to unlock liquidity, including a potential swap of shares of its listed entities, as the Shapoorji Pallonji Group seeks funds to repay costly debt, according to people familiar.

Representatives of Noel Tata, the Tata family patriarch, are exploring the possibility where SP Group receives shares of companies such as Tata Power Co. in exchange for some or all of its 18.4% in the privately-held Tata Sons Pvt., the people said, asking not to be identified because the discussions are private.

Two other options have also been presented: a direct buyout of the construction giant’s stake by Tata Sons, financed by overseas banks, or a sale to an external investor, preferably a global one, the people added.

Any breakthrough on this long-running tussle between the Tatas and the SP Group will prove to be a windfall for investors in the latter’s debt, which include the likes of Cerberus Capital Management LP, Davidson Kempner Capital Management and Farallon Capital Management. For the Tatas, a resolution may ease some of the intense regulatory spotlight it has come under in the past few years after the central bank’s rules revived pressure on its holding company to list on the exchanges.

Noel is the chairman of Tata Trusts, a group of charities that own 66% in Tata Sons. Natarajan Chandrasekaran’s announcement this month that he’ll step down as Tata Sons chairman in February has put Noel in the driver’s seat to drive a settlement. Noel also has familial connections: he is married to Aloo Mistry, the sister of SP Group Chairman Shapoor Mistry.

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Representatives of Tata Sons and Shapoorji Pallonji Group did not offer any immediate comments.

SP Group closed one of the largest private credit transactions in India in July, as investors are hopeful that the conglomerate can eventually monetize its stake in Tata Sons and unlock liquidity worth billions of rupees.

There’s no certainty that the ongoing talks will lead to a deal and the structure of the transaction may change as negotiations proceed, the people said. The Economic Times reported last month on the share swap being a possible way for SP Group to monetize the value of its Tata Sons stake.

A major hurdle will be agreeing on a valuation for Tata Sons, which controls the bulk of the sprawling salt-to-software conglomerate and has many large unlisted businesses such as Air India Ltd. and iPhone maker Tata Electronics Pvt Ltd. under its umbrella.

Both sides are evaluating legal aspects of all options being discussed as well as potential regulatory issues around the share swap since it will involve listed Tata entities, the people said.

SP Group is also periodically updating its stakeholders on the negotiations, while advisers are examining the legal implications of the various structures under consideration, the people said.

A resolution needs to come through within the next 18 months as that’s the timeline when SP Group’s recently closed bond issue will need to make its first payout.

These bonds sold by Eqyizen Investment Private offered 18.95% and will mature in 36 months. But the first interest payment is coming up in July 2028, according to the bond term sheet seen by Bloomberg.

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