Tata Power eyes stake sale in renewable power arm

Looks at three options to raise ~3,500 crore to reduce its ~42,000-crore debt

To bring debt to a manageable level, Tata Power is looking at three options to raise funds. One option is to sell up to 30 per cent stake in its renewable power firm, after it merged its own renewable power portfolio with Welspun Renewable Energy, which it had acquired in June 2016.

According to a banking source, under the second option, Tata Power is planning to raise funds by selling part of its equity in Welspun’s assets. Raising funds via a rights issue is another option.

The firm is even open to selling stake to a strategic partner at the Special Purpose Vehicle level, added a source. The idea is to reduce debt, which shot up to ~42,149 crore as of September last year (see chart).

Offers from prospective investors will be invited after the firm decides through the options mentioned above. The aim is to raise ~3,500 crore, irrespective of the option.

Tata Power had acquired Welspun’s renewables power business for ~10,000 crore in June 2016. The transaction came under attack from a few Tata Sons directors, who alleged the firm was not kept in the loop before the decision was taken by the Tata Power board.

Besides a stake sale in the renewable business, it expects to raise $400 million (about ~2,700 crore) by signing an agreement to sell coal mines in Arutmin, Indonesia.

The Tatas are concerned with the high debt levels and the nonresolution of the tariff issue of its Mundra Project.

In its reply to the National Company Law Tribunal, the Tatas had said that as a promoter of Tata Power, it was left in the dark about such a significant transaction (and the requirement for funding from such a transaction), which was agreed to by the firm while Cyrus Mistry was chairman of Tata Power.

In his communication to directors of Tata Sons, Mistry had said Tata Power’s financials were stretched as it aggressively bid for the Mundra project based on lowpriced Indonesian coal. As regulations changed, the losses in FY14 itself rose to ~1,500 crore.

According to Mistry, since Mundra constitutes ~18,000 crore or 40 per cent of the company’s capital, it depressed the return. It would also carry the risk of considerable future impairment, Mistry had remarked.