Tata Power eyes ₹6,000 crore from asset sales

Venkatesh Ganesh Mumbai | Updated on February 16, 2020

Praveer Sinha, CEO and Managing Director, Tata Power Co. Ltd   -  File photo: Paul Noronha

Company looking to sell African, Indonesian assets to pare debt

Tata Power expects to rake in ₹6,000 crore from the sale of some its assets in an effort to bring down its debt.

In September 2019, Tata Power had debt of ₹44,900 crore, which was more or less the same as in 2018. While debt can be an important tool in businesses, particularly capital-heavy ones such as power, industry watchers say the high level of cash reserves to go with the debt makes the company less risky to invest in. Tata Power has ₹22,600 crore in cash reserves.

Also, over the past three years, Tata Power has produced a sturdy free cash flow amounting to 61 per cent of its EBIT, which means it has enough cash to pare its debt.


African asset sale

“Our sale of assets in South Africa and Zambia combined would fetch ₹1,500 crore,” the company’s MD and CEO Praveer Sinha told BusinessLine.

In South Africa, Tata Power has a joint venture with Cennergi for wind power generation. Cennergi is an independent power producer jointly owned by Tata Power and Exxaro Resources. Similarly, in Zambia, Tata Power, along with power utility ZESCO, owns a 120 MW hydro power unit on a 50:50 basis, which the former intends to sell off. This is expected to be completed in three or four months, said Sinha.

Additionally, Tata Power will receive ₹1,000-1,500 crore from the sale of its 30 per cent stake in the Artumin coal mine, located in Indonesia. “This will reflect in the next 12-18 months,” said Sinha. The company had acquired the Indonesian coal mines hoping to control the fuel costs for its 4,000-MW Mundra Ultra Mega Power Project (UMPP) in Gujarat. However, the Indonesian government changed its coal benchmarking laws, which subsequently continues to be a key factor in the stressed project.

Current under-recoveries from Mundra are estimated at ₹0.50/unit, versus ₹0.90 in Q2 FY19, on account of lower fuel costs. Operating profit at the plant improved to ₹261 crore, just ₹30 crore short of its finance costs.

Power regulator Central Electricity Regulatory Commission (CERC), which constituted a committee to look into increasing the sale price of power in the country, is yet to arrive at a conclusion on Tata Power’s pricing.

Non-core assets

In addition to all this, Tata Power is in the process of getting out of businesses that are not directly related to power. As a part of this, its defence business, which was with the National Company Law Tribunal (NCLT), has received approval for a ₹2,300-crore sale. “We are awaiting approvals from the Defence Ministry,” said Sinha.

Published on February 16, 2020

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