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Tata Power's renewable InvIT may help cut debt by Rs 20,000 crore

Tata Power has already shortlisted seven investors - including Mubadala, KKR, Brookfield, Petronas and Canadian pension fund CDPQ - to negotiate to raise investment in its InvIT

twitter-logoNevin John | August 8, 2020 | Updated 00:33 IST
Tata Power's renewable InvIT may help cut debt by Rs 20,000 crore

Tata Power Company Ltd (TPCL), India's oldest power generation company, targets to drastically cut its gross debt, launching infrastructure investment trust (InvIT) in the second half of this financial year. According to the estimates of experts, the company wants to reduce the debt by at least Rs 18,000-20,000 crore on its books through the process.

N Chandrasekaran, chairman, Tata group said at the recent annual general meeting (AGM) that the company will reduce its gross debt to Rs 25,000 crore, which is at Rs 48,376 crore right now. He wants to achieve it through the sale of non-core assets, equity infusion from Tata Sons and formation InvIT and stake sale in it.

Morgan Stanley Research values the 2,630 megawatts (MW) renewables portfolio of TPCL between Rs 18,500 crore and Rs 20,400 crore. However, the green energy business enjoys higher valuation in the stock market because of its low electricity generation and maintenance cost and environmental benefits. Adani Green Energy, which has an operational renewable portfolio of 2,595 MW, is valued Rs 58,000 crore on Indian stock markets.

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TCPL plans to transfer its Rs 11,000 crore of debt, which is part of the renewable portfolio, along with the assets to the InvIT. "The transaction would lead to actual equity release, with part to be used for debt repayment and part for equity needs of under-construction assets," the research agency said.

According to news reports, the power major has already shortlisted seven investors - including Mubadala, KKR, Brookfield, Petronas and Canadian pension fund CDPQ - to negotiate to raise investment in its InvIT. The company is expected to dilute its 49 per cent stake in the InvIT in favour of investors and retain the rest.

TPCL plans to increase the share of renewables in EBITDA to 50-60 per cent by FY25 from the present 30 per cent. Chandrasekaran said, "The company aims to be one of the leading players in renewables. The company will scale both its manufacturing of solar cells and modules as well as the solar EPC business. The company intends to add additional capacity of 10 gigawatts in the next five years."

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Morgan Stanley said in its report that the company is undertaking balance sheet repair. Since April this year, TPCL has sold its stake in Cennergi and shipping business for Rs 2,300 crore. The company targets another Rs 2,100 crore from sales of other non-core assets by March 2021. Moreover, the promoters Tata Sons approved to infuse equity of Rs 2,600 crore in the company.

Chandrasekaran said TCPL will end FY21 with a debt of around Rs 25,000 crore, bringing down the debt to equity ratio to 1 from 1.99 in March. "This will also move the Net Debt to EBITDA ratio closer to 3, strengthening the balance sheet and lowering financing costs," he added.

The consolidated revenue of TPCL decreased by 3.5 per cent to Rs 28,948 crore in 2019-20. The profit before exceptional items stood at Rs 1,231 crore as against Rs 1,274 crore in the previous year. The consolidated net debt at the end of the year was Rs 43,578 crore in March. The major liability on the books of TPCL is its ultra mega power plant in Mundra. The 4,000 MW plant is making losses for years because of the low electricity price realisation. TPCL made an investment of Rs 24,000 crore for building the plant and covering the losses.

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