Shapoorji Pallonji bonds hit record as potential Tata Sons listing boosts debt repayment hopes

Shapoorji Pallonji Group's dollar bonds rose to a record this week as investors bet on a potential listing of Tata Sons could help the heavily indebted Indian construction group unlock value from its stake in the holding company and strengthen its ability to repay expensive debt.

The $650 million of 14.5% three-year dollar notes issued by Mercury Finance, a Mauritius-incorporated special purpose vehicle overseen by the SP Group, gained 1.8 cents on the dollar this week to reach a record 101.9 cents, according to Bloomberg data. The bonds are on track for their strongest weekly performance since they were issued in July.

The optimism has also extended to the group's rupee-denominated debt. Deutsche Bank AG and some wealth managers are marketing bonds issued by Eqyizen Investment, another SP Group company, according to bondholders familiar with the matter. Some holders are offering the securities at yields of 18.75%, compared with 18.95% when the bonds were sold in July. A decline in yields indicates stronger demand as investors become more confident about repayment prospects.

Distributors have also lowered the minimum investment size for the rupee bonds to 10 million rupees ($104,360) from ₹100 million, according to people familiar with the matter. The move is intended to broaden the potential investor base for the securities. Deutsche Bank did not immediately respond to an email from Mercury seeking comment.

The latest move in the Tata Sons saga has provided fresh momentum to SP Group debt. Tata Sons' board on Thursday decided to pursue a stock listing and extend its chairman's term by five years, despite opposition from founding-family patriarch Noel Tata. The SP Group said on Friday that it was prepared to work with Tata Sons on a potential listing and described the process as a possible bridge toward reconciliation between the two longstanding business families.

At the centre of the financial interest is SP Group's 18.4% stake in Tata Sons. A successful listing could allow the construction group to monetise part of that holding and potentially unlock billions of rupees in liquidity, giving it additional resources to address its debt burden.

The 160-year-old SP Group has faced mounting financial pressure in recent years after taking on substantial debt following the pandemic. The group has increasingly relied on expensive private credit and has sought multiple extensions from bondholders as it dealt with cash-flow constraints. Those pressures have also driven efforts to list group businesses and sell assets as part of a broader attempt to strengthen its finances.

In the case of bond investors, the potential Tata Sons listing therefore represents more than a corporate restructuring event. It could provide the SP Group with an avenue to realise value from one of its most significant assets at a time when the group is seeking to manage high-cost borrowings and restore greater flexibility to its balance sheet.