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PFC's ₹20,000 crore loan to Shapoorji Pallonji Group faces scrutiny from independent directors over governance concerns. Issues include non-core loan purposes, collateral adequacy, and bailout claims. The company scheduled a Board meeting on August 6 to address these concerns.
State-owned Power Finance Corporation Limited (PFC) is facing significant corporate governance concerns from its independent directors regarding a recently approved ₹20,000 crore loan to the Shapoorji Pallonji (SP) Group. These concerns are expected to be addressed in the upcoming board meeting on August 6.
Independent directors have questioned the loan's alignment with PFC's core mandate. Traditionally, PFC is a lender focused on the energy sector, but this loan is directed towards the infrastructure business, which is outside its primary domain. This divergence from its core activities has raised eyebrows among the independent directors.
Additionally, concerns have been raised about the collateral provided for the loan. Initially, SP Group's shares in Tata Sons were considered as collateral, but this was subsequently changed to a land parcel in Mumbai.
The loan is backed by collateral valued at 1.75 times the loan amount, which the independent directors believe may not provide sufficient security.
Another critical issue highlighted by the independent directors is the potential use of the loan to bail out SP Group from defaulting on foreign lenders. The loan's terms include a four-year moratorium on the principal repayment, which has also come under scrutiny.
An independent director, speaking on the condition of anonymity, indicated that these concerns would be thoroughly discussed in the results board meeting.
The market has reacted negatively to these governance concerns, with PFC's share price closing at ₹497.40, down ₹28.90 or 5.49%, on Monday. Despite this recent drop, PFC shares have gained 25.91% in 2024, with a 12-month return of 133.00%.
In response to the concerns, the SP Group issued a statement emphasising their longstanding contribution to the country’s infrastructure development over the past 150 years.
The group refuted claims of the loan being a bailout, describing the refinancing of loans ahead of maturity as a routine process. They also disputed the accuracy of the security package and repayment terms mentioned in the reports, labelling them as incorrect and not based on factual records.
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