Shapoorji Pallonji Group wants Tata Sons to consider Rs 25,000 crore share buyback

Mumbai: The Shapoorji Pallonji (SP) Group wants Tata Sons to review on priority at its next board meeting a proposal to buy back about Rs 25,000 crore worth of its shares, as the debt-laden conglomerate urgently seeks funds to repay borrowings, people familiar with the matter said.

The SP Group has not withdrawn the proposal, which was placed before the Tata Sons board by Noel Tata at its last meeting, the people said.

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The subsequent Reserve Bank of India (RBI) directive requiring Tata Sons to pursue a listing has not altered the group's need for funds, even as it has welcomed the regulatory move, they said.

The plan envisages monetising part of the SP Group's roughly 18.4% stake in Tata Sons, held through Sterling Investments Corp and Cyrus Investments. The proceeds would be ring-fenced for debt repayment.

The group had submitted a plan to Tata Sons for a. selective capital reduction over 18 months, generating gross proceeds of at least Rs 25,000 crore. The valuation would be based on income-tax fair value, according to details of the proposal.

SP group did not comment. Officials close to the matter said that it is up to Tata Sons to decide on the best way to enable the monetisation through buyback, an SPV structure or any other plan. Seeking a buyback immediately after a potential listing of Tata Sons could undermine the listing process, the people said.

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The group had recently cleared an approximately Rs 3,500 crore in bond repayments after securing fresh funding commitments from a majority of its existing lenders, easing near-term liquidity pressures and helping it avoid a possible default ahead of a September deadline.But there is an urgency for immediate capital to handle the debt burden, officials said.

Experts said a selective capital reduction could provide a route to monetise the stake, but the process would require regulatory approval and scrutiny of the valuation and treatment of shareholders.

"Selective buy-back of shares can be done by capital reduction under Section 66 of the Companies Act, 2013, through the NCLT approval process rather than a conventional buy-back under Section 68," said Uday Ved, tax partner at KNAV.

"Valuation and fairness for all shareholders could lead to challenges during the NCLT process. Equally relevant, the board may need to evaluate use of funds for the capital reduction vis-a-vis protecting for future growth, assuming listing in future," he said.

The SP Group, Tata Sons' second-largest shareholder, has pledged its stake against borrowings and is seeking to unlock value from the investment to strengthen its finances.

It completed a Rs 21,500-crore refinancing in July after telling investors it planned to monetise part of its Tata Sons holding through a listing or share sale within 18 months. The group also faced a repayment obligation of about Rs 3,500 crore at the end of September.

The funding request comes amid uncertainty over Tata Sons' future structure. The RBI rejected the company's application to surrender its registration as an upper-layer non-banking financial company (NBFC) and directed it to comply with the applicable regulatory framework.

Under RBI rules, upper-layer NBFCs must list their equity shares on a recognised stock exchange within three years of being identified in that category.

SP Group chairman Shapoorji Pallonji Mistry backed the RBI decision last month, describing listing as a means to strengthen transparency and public accountability. His position contrasts with that of Noel Tata, who opposes a public listing.

Tata Trusts, which collectively hold a majority stake in Tata Sons, have said they have not agreed to a listing and that alternatives should be considered.

The trusts have argued that preserving the existing ownership structure would help sustain philanthropic activities funded by dividends from Tata companies.