Tata Power plans to raise ₹7,000 cr via bonds

Tata Power is planning to raise up to ₹7,000 crore via non-convertible debentures (NCD)/bonds on a private placement basis for one year. This, among other businesses, including appointment of six new directors, was considered at its 98th annual general meeting held in Mumbai on Wednesday.

Addressing the company’s AGM, Tata Group Chairman N Chandrasekaran named three key priorities for the company: to solve issues at Tata Power’s Mundra plant in Gujarat, reduce the company’s high debt, and simplify the corporate structure.

The steep rise in global coal prices impacted the performance of Coastal Gujarat Power Ltd (CGPL), the holding company for Tata’s 4,000 MW Mundra plant. The company has been making multiple attempts to rescue this project after a Supreme Court ruling in April disallowed it to charge higher power tariff by citing a change in Indonesia’s regulations that increased the price of coal. That effectively rendered operations at Mundra unviable.

“The company approached all courts of appeal and continues to explore viable options to address the issues by continuous engagement with the power procurers and financial institutions,” Chandrasekaran said.

In June, Tata Power had written to the government proposing to sell 51 per cent equity of the ailing asset for a nominal ₹1.

A decision on that is still awaited; according to industry watchers, such a move will require co-ordination with the regulator, state distribution companies and lenders. Meanwhile, the Coastal Gujarat Power Ltd’s (CGPL) losses continue to widen. In the first quarter, it recorded an incremental Ebitda loss of ₹296 crore.

High debt levels have long been an issue for the company and, according to the Group’s Chairman, the company is examining various debt reduction options, including sale of non-core assets. With gross debt at ₹48,816 crore, Tata Power accounts for 16-20 per cent of the Tata Group’s net debt.

Credit Suisse analysts, in their recent report, note that although Tata Power’s revenue and profits have been increasing steadily for the past couple of years, its net debt/EBITDA remains high. For other flagship companies such as Tata Steel and Tata Motors, the leverage is at a comfortable level (4.3x and 1.4x, respectively, in FY-17); Tata Power, on the other hand, has witnessed an increase in leverage (from 5x in FY-16 to 8x in FY-17), analysts say.

Another priority for the company, which currently has more than 90 subsidiaries and associate companies, will be to simplify the corporate structure. “The company is working on a plan to simplify the corporate structure where feasible,” Chandrasekaran noted.

Tata Power currently has a total operating capacity of 10,463 MW, of which 98 per cent is tied up in long-term PPAs.

The company has set a target of making 30-40 per cent of its generation capacity non-fossil based (its clean energy portfolio is now at 3,141 MW, out of which renewable business capacity is at 2,000 MW).

According to the company’s annual report, Tata Power’s renewable energy arm, Tata Power Renewable Energy Ltd, is in the process of implementing projects for nearly 326 MW of renewable power at various locations on a greenfield basis.

At the same time, a 1,600-MW coastal Maharashtra project at Dehrand, a coal-based project proposed years back, keeps figuring as another “potential growth area” in the company’s annual reports since 2011, including the latest one.

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