PFC seeks legal opinion on approving ₹15,000 Crore loan to Shapoorji promoters

8 May 2024 , 12:51 PM

The state-owned Power Finance Corp (PFC) has sought legal opinion on approving a ₹15,000 Crore loan to the Shapoorji Pallonji (SP) Group’s proprietors, partly against their 18.37% stake in Tata Sons.

The Mistry family, the promoters, approached the lender earlier this year with a proposal for money against cash flows from the group’s real estate company and Tata Sons ownership, according to people familiar with the situation. The Mistrys own the share through family investment vehicles.

According to the sources, the state-owned PFC has sought guidance from two independent legal firms on whether a non-banking finance company (NBFC) can lend money against unlisted shares as collateral. Tata Sons is a privately held company with unlisted shares. The Tata Trusts own 66% of the Tata Group’s holding company.

While the Reserve Bank of India’s (RBI) master directions for NBFCs include criteria for lending against shares of public businesses, they remain quiet on unlisted stocks.

The SP Group and the Tata Group, previously close friends, parted out after the late Cyrus Mistry was dismissed as Tata Sons chairman in October 2016. Since then, the Mistry family’s stake in Tata Sons has been a source of dispute. The SP Group’s financial difficulties have widened the gap.

According to sources acquainted with the financing proposal that is under review by PFC, the Mistrys will create two special purpose vehicles (SPVs) to accept five-year loans of ₹11,000 Crore and ₹4,000 Crore, respectively.

When the Mistrys sell their shares in the SP Group’s real estate arm, the profits will go through the two SPVs and be accessible to PFC, according to the financing proposal. PFC will hold a lien on the bank accounts of both SPVs. As a secondary security, it will have access to Tata Sons shares held by Sterling Investment Corp., a Mistry family investment holding firm.

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