Tata Power’s debt-reduction plan hits a roadblock

Tata Power Company Ltd (TPCL), India's oldest power generation company, has failed to attract strategic investors for its renewable portfolio, putting a question mark on its debt-reduction strategy. The company had planned to hive off its renewable energy business into an Infrastructure Investment Trust (InvIT), and sell the stake to raise capital and reduce debt. However, the due-diligence with half a dozen private equity investors, including Petronas, Brookfield, KKR and Canadian pension fund CDPQ, has yielded little result, according to sources.

Tata group chairman N. Chandrasekaran had announced the debt-reduction plan at the company’s annual general meeting (AGM) in July 2020. The plan was to reduce gross debt to ₹25,000 crore from ₹48,000 crore by March 2021 through sale of non-core assets, equity infusion from Tata Sons and InvIT stake sale.

TPCL still has around ₹48,500-crore consolidated debt on its books, including net debt of ₹38,898 crore. In the January-March 2021 quarter, the debt was lower at ₹43,170 crore. The increase in debt is primarily due working capital and capex requirements, the company had said after the June-quarter result.

Earlier, Morgan Stanley Research had valued the 2,700-megawatt (MW) renewables portfolio of TPCL between ₹18,500 crore and ₹20,400 crore. The company had already announced its plan to gradually withdraw from the coal-fired power generation business to focus on renewables. The green energy business enjoys higher valuation in the stock market because of the low cost of electricity generation and maintenance, in addition to environmental benefits. Adani Green Energy, which has an operational renewable portfolio of 3,700 MW, is valued at ₹1.43 lakh crore. TPCL currently has a market capitalisation of ₹42,400 crore.

TPCL targets to increase the share of renewables in its EBITDA to 50-60 per cent by FY25 from the current 30 per cent. Last year, the company sold off some of its non-core assets, including its stake in South African joint venture Cennergi and its shipping business, for ₹2,300 crore. Tata Sons had infused an equity capital of Rs 2,600 crore in the company last year, raising promoters’ stake by nearly 10 per cent to 46.9%. Tata Sons bought 49-crore shares at ₹53 a piece, which stands at ₹133 now.

The consolidated operating income of TPCL increased to ₹9,831 crore in the first quarter of the current fiscal, compared with Rs 6,671 core in the same period last year. The profit before exceptional items increased to Rs 466 crore, against Rs 268 crore, during the period.