Diversified power company Tata Power is open to raising low-cost funds for acquiring the Welspun Energy assets at an enterprise value ₹9,249 crore.
Managing Director and CEO of Tata Power Anil Sardana told reporters on Monday that the low-cost funds would be for the first phase of acquisition. For the second phase, the company could go back to its shareholders or even approach a strategic investor.
The company on Sunday evening announced that its fully owned subsidiary Tata Power Renewable Energy Ltd (TPREL) had acquired 1,140 MW solar and wind power assets of Welspun Energy Private Ltd. TPREL has signed a share purchase agreement with Welspun Energy to acquire its subsidiary Welspun Renewables Energy Private Ltd (WREPL). The transaction sized is ₹9,249 crore, of which ₹5,500 crore is the existing debt. The deal is expected to close in September.
WREPL’s consolidated revenues for FY 2016 stood at Rs 768 crore, while in FY 2015 they were ₹761 crore.
Sardana said Tata Power’s debt to equity and debt to EBITDA has reduced in fiscal 2016. After the acquisition of WREPL, in 2017 the same ratios would be maintained. The assets are revenue generating from day one. These assets will take care of the existing debts but also fresh debts, which would be raised. The assets do not have future construction or power off-takers risks.
At the deal value, TPRE will be able to acquire a largely operational portfolio of solar and wind power assets at a valuation of about ₹8 crore/MW. At a going rate of about ₹5.75 crore/ MW and ₹6.5/ MW for solar and wind power projects, respectively, the acquisition appears a tad expensive.
But long-term power purchase agreements (PPA) with state distribution utilities for the sale of power from these plants will provide assured buyers.
Sardana pointed that almost all projects of Welspun have extra land, which in time could be exploited for additional generation of power, without incurring new capital costs.
Along with surplus land, the projects have substations and transmission capacity, which could be used carrying additional power to the consumers. This option would be explored based on the power requirements of the states.
The projects are spread across 10 states, therefore, it is a de-risked portfolio for Tata Power. Many of the wind projects are contiguous with existing projects of Tata Power.
Tata Power will use its abilities through technological intervention to increase the power generation, “Although our investments in solar are limited, we have tremendous experience in managing solar projects due to Tata-BP solar business,” Sardana said.
He added that investments have come at a time when prices of silicon are stable, solar power tariffs are firms and prices of other equipment such as Balance of Plant, which is required for solar projects are reasonable.
(With inputs from BL Research Bureau)