SP Group Default Puts Spotlight On Upcoming Debt Repayments

It came as a little surprise when on Sept. 25, Shapoorji Pallonji and Co. Pvt. Ltd. defaulted on Rs 200 crore worth commercial paper issued to Union Bank of India. The flagship company of the SP Group has over Rs 23,500 crore of debt, and first a slowing economy and then the pandemic has made repayment a tall task.

The default prompted ratings downgrades by CARE Ratings Ltd. and ICRA Ltd. More could follow as the group may be seeking to restructure Rs 10,900 crore in debt at holding company, Press Trust of India reported last month.

Based on data available on Bloomberg, the group has bonds of close to Rs 110 crore maturing between October and December this year.

According to ICRA, total group debt repayments coming up in 2021 amount to Rs 9,999 crore. The group flagship itself has Rs 5,320 crore worth of debt repayment due in the next calendar year.

Quick Glance At SP Group Debt

SP Group is largely controlled by its flagship company Shapoorji Pallonji and Co. Pvt. Ltd., which is a holding company for 25 of its subsidiaries and owns close to 20% stake in two of the other subsidiaries. The company has provided support through financial guarantees to 24 of the group companies and performance or bid bond guarantee to 11 of the group entities, according to CARE's September note.

Total group borrowing amounts to more than Rs 25,000 crore. The flagship company alone has Rs 23,500 crore worth of debt.

*Note that Sterling and Wilson Pvt. Ltd. and Sterling and Wilson Solar Ltd. are not a part of the total rated amount by ICRA, hence considered separately.*
*Also note that apart from the above companies, SP Engineering and Construction, SP Investment Advisors and Oman Shapoorji Co. are few other group companies that are not a part of the total rated amount as details for these entities are not publicly available.

Also Read: Tata - Mistry: The Beginning Of The End?

Whereas group liquidity position is a meagre Rs 1,934 crore in liquid funds.

Apart from these liquid funds, the group has a significant number of land parcels and investments in various subsidiaries, few of which are at various stages of monetisation, CARE Ratings said.

Still, the financial liquidity of the company might not suffice its repayment obligations. The estimated cash flow from operations along with the existing cash balance would not be adequate to meet the high repayment obligations falling due over the short to medium term, ICRA said.

It is to tide over this financial gap that the SP Group sought to pledge its promoter’s holding in Tata Sons—the private holding company of the $100-billion Tata Group. But that move has been stymied by litigation and last month Cyrus Mistry, one of the promoters of the SP Group, said in a statement that his family is ready to “separate” from Tata Sons. That suggests the Mistrys are willing to sell their 18.37% shareholding in Tata Sons, estimated to be worth upwards of Rs 1.5 lakh crore.

Also Read: How To Value Tata Sons And The Mistry Family’s Stake

The next update in this separation process will be when the Supreme Court hears the matter on Oct. 28. The SP Group’s urgent need for funds will be a key determinant in how, and for how much, this separation occurs.