Tata Power to raise $450 m at 8.5% coupon rate

Our Bureau Mumbai | Updated on April 20, 2011

Tata Power said its wholly owned subsidiary Bhira Investments has priced a 60 year non-callable for five years (Reg S) hybrid capital offering of $ 450 million at 8.5 per cent annually, payable semi-annually.

The securities are guaranteed by Tata Power.

Intermediate equity

Standard & Poor's Ratings Services from Singapore said it considered the proposed issue of fixed to floating rate subordinated notes, guaranteed by Tata Power, due in the year 2071 to have ‘intermediate' equity content.

S&P said this meant that it treated 50 per cent of the principal amount of the notes as equity, and 50 per cent as debt in its calculation of financial ratios.

S&P said Tata Power will unconditionally and irrevocably guarantee the proposed securities as subordinated securities, while its subsidiary Bhira Investments will issue the notes.

Key features

Regarding key features of the subordinated notes, S&P said it includes a 60-year term to maturity with the first call date at year five and a 100 basis point step-up at year ten [which meant that the coupon rate would be increased by one per cent over the announced rate].

There is an optional deferral of interest, subject to a look-back period of six months [which indicates that borrower will inform about coupon rate reset to investors six months in advance].

There is a legally binding replacement capital covenant, which requires that the issuer fund any redemption of the instrument with a similar equity-like instrument.

Dividend stopper

The terms of issuance also stipulated a dividend stopper — no declaration or payment of dividends on common shares if the distribution of the proposed hybrid is deferred.

Standard & Poor's does not rate the proposed issue and according to its criteria on hybrid securities, ‘intermediate' equity instruments that are subordinated to senior obligations and include some form of payment deferral clause, are typically rated up to three notches below its issuer rating. The view is based on the recovery consideration in a liquidation scenario and highlighted risk of payment deferral when compared with senior debt, the rating agency said.

Deutsche Bank, Goldman Sachs and UBS are joint book runners for the issue.

Published on April 20, 2011

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