Eqyizen Investment, a financing arm of India's Shapoorji Pallonji Group (SP Group), is preparing to sell another batch of zero-coupon rupee bonds, aiming to raise the equivalent of $150-200 million, according to bankers familiar with the plan. The notes are slated to mature in July 2029, mirroring two earlier deals this year that priced at a hefty 18.95% yield.
The new sale would follow a roughly 213.5 billion rupee issuance in July and a 44.5 billion rupee deal in October, both carrying the same maturity and yield. Zero-coupon bonds do not pay periodic interest; instead, they are sold at a deep discount to face value and redeemed at par at maturity, with the difference representing the investor's return.
An in-house funding chain
What makes these bonds unusual is the structure behind them. Bankers describe a chain in which Mercury Finance, another SP Group entity, issued its own US dollar zero-coupon bonds due July 2029 and then invested the proceeds into Eqyizen's rupee notes. In effect, the group is converting dollar borrowing into rupee funding through an internal transaction.
This approach allows the conglomerate to tap dollar investors while obtaining rupee cash, but it introduces an extra layer of complexity. The true all-in cost depends on whether, and at what price, the dollars are hedged back into rupees. Currency hedging costs can fluctuate with market conditions, so even if the rupee bond's headline yield stays fixed, the effective expense for the group could change.
For investors, this means the 18.95% yield is not necessarily the full picture. If hedging costs rise, the group's real funding burden increases, potentially affecting its ability to repay. Conversely, if the rupee strengthens or hedging becomes cheaper, the effective cost could ease.
Why another sale now?
Eqyizen still has capacity under its borrowing limit and is trying to complete this next raise soon, according to the bankers. The timing suggests the group wants to lock in financing while conditions are favourable, or at least while investor appetite remains strong.
Sentiment toward SP Group credit has been supported by talk of selling part of its stake in Tata Sons, the holding company of the Tata conglomerate. Such a sale could raise substantial cash and ease the group's debt burden, but the process has not advanced, leaving the outcome uncertain.
The group's reliance on high-yield, zero-coupon debt reflects its broader financial situation. SP Group has been working to reduce leverage, and these bond sales are part of that effort, albeit at a steep cost.
What it means for investors
For everyday investors, the key takeaway is the concentration of risk. Because both the rupee notes and Mercury's dollar bonds are zero-coupon, there are no regular interest payments and no gradual paydown. Most of the repayment obligation piles up into a single date in July 2029.
That structure makes the bonds more sensitive to changes in refinancing conditions. If the group's creditworthiness deteriorates or market access tightens closer to maturity, the price of these bonds could swing more sharply than plain-vanilla bonds that pay interest along the way. Investors holding these notes are essentially betting that SP Group will be able to refinance or repay in 2029.
The hedging element adds another layer of risk. If the dollar-rupee exchange rate moves against the group, or if hedging costs spike, the effective cost of the debt rises, potentially straining cash flow. Conversely, a stronger rupee or cheaper hedging could improve the group's position.
For those watching the broader Indian bond market, this deal comes at a time when the local bond rally faces a key test with a large auction on the horizon. The rupee has also been firming, helped by falling oil prices and foreign inflows, as seen in recent moves past the 94-per-dollar level. A stronger rupee could reduce hedging costs for SP Group, but it also reflects broader market dynamics that affect all borrowers.
Investors should also note that zero-coupon bonds are often more volatile than coupon-paying bonds of similar credit quality. The lack of interim cash flows means the entire return is tied to the final repayment, amplifying price moves when sentiment shifts.
For now, the market appears willing to absorb SP Group's paper at yields near 19%, a level that compensates for the risks. But the concentration of maturities in 2029 means that as that date approaches, refinancing risk will become a growing focus for anyone exposed to these bonds.
As always, this is not a recommendation to buy or sell. It's a reminder that high yields often come with hidden complexities, and understanding the structure is essential before committing capital.
