Tata Power’s non-core asset sale picks pace

Tata Power has set the ball rolling in monetising its non-core assets, even as concerns remain about the future of its ultra-mega power project (UMPP) at Mundra, Gujarat. Analysts see the three deals announced by the private power producer in March as a step in the right direction and a small relief to its debt profile.

On March 29, the company said it would sell its defence business to Tata Sons’ subsidiary Tata Advance Systems for an enterprise value of ~22.30 billion. On March 23, it announced it would sell its stake in Panatone Finvest to Tata Sons for ~15.42 billion, and stake in Tata Communications to Panatone for ~6.13 billion. The three deals would, however, fetch only ~43.85 billion as against Tata Power’s consolidated debt of ~479.05 billion as of December 2017.

“The ~40 billion from asset sales, for a consolidated debt of ~479 billion, means the interest cost will be lower by ~4 billion,” said an analyst with a domestic brokerage firm, on how the deals might help the company on a quarterly basis. The asset sales could be aimed at improving the company’s debt profile.

Analysts expect the proceeds from the deals, still subject to various approvals, will reflect in the June quarter. Not all of ~43.85 billion is expected to come in the short term. Of the enterprise value of ~22.30 billion for the defence business, ~10.40 billion is payable at the time of closing and ~11.90 billion after achieving certain milestones. “I expect the second part of the deal proceeds to take two to three years to show up,” said Rupesh Sankhe, an analyst with Reliance Securities.

Nevertheless, analysts see the sale of the defence business as a good move. “It is good they are doing this. Defence is something that market never valued, as no one could estimate what was happening in the sector,” said an analyst, referring to Tata Power’s holdings in various subsidiaries as a treasure chest.

Plans to sell stakes in Tata Project and Tata Ceramics, and completion of the announced deal for the Indonesian mine are part of monetising this treasure chest.

“The sale deals announced in March will help reduce debt by about 10 per cent. Though these are a good move, until Mundra is resolved, which is the major contributor to the consolidated debt, not much improvement is expected,” said Sankhe.

“Tata Power’s success in selling a majority stake in Mundra UMPP to state distribution companies and associated debt transfer of over ~100 billion to them is the key upside risk,” analysts with JP Morgan said in a report last month.

Not much relief is seen in the near future on Mundra, as discussions between various stakeholders, including power procurers, continue. “Discussions are going on at a slow pace, and no resolution has been arrived at so far,” said a person with direct knowledge of the development.