The plan is seen by legal experts as potentially controversial given that Tata Sons has in the past objected to the Mistrys pledging their stake in the conglomerate’s holding company. The Mistrys own an 18% stake in Tata Sons, the holding company of the Tata Group. Relations between the two sides have been acrimonious ever since Cyrus Mistry‘s October 2016 ouster as chairman of Tata Sons.
The promoters intend to use the money raised from the proposed debenture issue to make advance payments of bank loans of group companies and for the working capital needs of group firms that are engaged in the construction of high-value infrastructure projects such as oil drilling infrastructure.
Documents filed with the Registrar of Companies by Sterling Investment Corp., a Mistry family company that owns a 9.185% stake in Tata Sons, show that promoters through group company Evangelos Ventures plan to raise the amounts mentioned earlier by pledging Tata Sons shares.
The Tata Sons shares held by Sterling Investment were till recently pledged with Standard Chartered Bank against outstanding loans of Shapoorji Pallonji and Co. Ltd worth ₹2,800 crore.
However, documents show that the loans were prepaid last month and the shares were released by Standard Chartered Bank.
Shapoorji Pallonji and Co. and Tata Sons did not respond to emailed queries sent on Friday.
Standard Chartered Bank declined to comment.
Apex Court Ruling
The Supreme Court had in a ruling on March 26 upheld the right of Tata Sons to remove Cyrus Mistry as chairman of the company, deciding a prolonged legal battle in favour of the Tatas. Mistry had challenged his October 2016 removal.
The apex court has remained silent on the issue of whether the Tata Sons shares held by the Mistry family can be pledged.
“There is no mention of whether Tata Sons shares can be pledged in the company’s articles of association. Moreover, there is a process for obtaining fair value of the shares which is defined. This implies the shares are very much tradeable,” a lawyer aware of the matter said on condition of anonymity.
The 150-year-old Shapoorji Pallonji and Co.’s indebtedness has been a matter of concern for its promoters. The group has overall debt of around Rs 20,000 crore and has been selling assets to repay bank loans.
The company recently sold its majority stake in Eureka Forbes to private equity firm Advent International for Rs 4,400 crore. Group unit Sterling and Wilson Solar is also looking to take on a partner to pare debt.
A lenders’ consortium led by State Bank of India had in October last year approved a one-time restructuring (OTR) package for the company as part of the Covid relief programme introduced by the Reserve Bank of India. That has provided the company a two-year reprieve from its loan repayment obligations.