The Shapoorji Pallonji Group, a major player in India’s real estate and construction sector, has secured a record-breaking $3.4 billion private financing deal—the largest of its kind in the country. The transaction offers investors a 19.75% yield, a low loan-to-value ratio, and a rare opportunity to deploy significant capital in one of the world’s fastest-growing markets.
However, the fine print reveals several potential pitfalls. Central to the deal is Shapoorji’s over $18 billion stake in the privately held Tata Sons, which serves as the primary collateral. But the company’s ability to transfer these shares is uncertain—Tata Sons’ board can block such transfers, and the two families have a history of legal disputes. Additionally, one of the entities holding the shares may soon face stricter capital regulations. The Reserve Bank of India plans to reclassify the entity, potentially raising its capital adequacy ratio to 15%. If it fails to comply or obtain an extension, the yield on the loan could increase, according to a Bloomberg-reviewed term sheet.
There are also broader concerns about Shapoorji’s business strategy, especially its ability to list its real estate arm as planned.
Still, Shapoorji’s ability to secure this deal despite these challenges underscores the current boom in India’s private credit market, buoyed by a $1 trillion government infrastructure initiative. The market saw $9.2 billion in private credit transactions last year, a 7% increase, according to Ernst & Young. Global investment giants like KKR and Goldman Sachs are actively scouting deals, while domestic firms such as Kotak Alternate Asset Managers plan to launch multibillion-dollar funds. Sovereign wealth funds from the Middle East and Indian government-linked investors are also pouring in, according to a report from Bloomberg.
Shapoorji has emerged as the centerpiece of this conversation.
The complications behind the deal
At the heart of the financing lies a complex web of challenges. The key concern is the transferability of the Tata Sons shares. Because Tata Sons’ board holds veto power, Shapoorji may be unable to liquidate the collateral if needed—unless it mounts a legal challenge.
Adding to the uncertainty is the RBI’s move to reclassify an entity that holds part of the collateral. This change will require it to maintain higher capital buffers, and failure to meet the new threshold could trigger an increase in the deal’s yield.
To manage its debt, Shapoorji has been aggressively restructuring. It has carved out its real estate business, completed IPOs of subsidiaries such as Afcons (engineering and construction) and Sterling and Wilson Solar (renewables), and sold off several assets. The current deal is backed not only by the Tata stake—estimated at $18.6 billion—but also by $3.6 billion worth of real estate and energy assets. According to sources, these assets would likely be liquidated before tapping into the Tata shares, the report mentioned.
Shapoorji also plans to list its real estate unit, which could generate additional liquidity.
Deutsche Bank acted as the sole bookrunner, guiding investors through the associated risks. Investors were drawn by the eye-catching 19.75% yield on the three-year, zero-coupon rupee bond, and the deal’s sheer scale. Such opportunities to deploy large capital sums quickly are rare in India.
The overall loan-to-value ratio is approximately 16%, based on all collateral, suggesting a healthy buffer for lenders—assuming asset liquidation is viable. Investors reportedly expect to tap other collateral first and, if needed, approach Tata Sons for share transfers, as per the report.
Roughly a dozen large global investors participated in the deal, including Ares Management, Cerberus Capital Management, Davidson Kempner, and Farallon Capital. Deutsche Bank, Ares, and Davidson Kempner declined to comment. Cerberus, Farallon, the RBI, and Tata Sons did not respond to Bloomberg’s requests for comment.
After hiring an adviser last year, Shapoorji has made significant progress in reducing its debt. It has halved its rated debt load (excluding the new private credit), restructured operations, and listed key subsidiaries—steps that suggest the group is serious about cleaning up its balance sheet, it added.