Renewables InvIT To Help Tata Power Meet Debt-Reduction Target

Tata Power Ltd. will transfer its renewables assets and part of its liabilities to an infrastructure investment trust, setting it on track to meet its debt-reduction target.

The company on July 2 received in-principle board approval to transfer operational assets with 2.6-gigawatt capacity under its wholly-owned arms Tata Power Renewables and Walwhan Renewable Energy to the InvIT to unlock value. That includes the transfer of debt that will help the company deleverage its balance sheet.

Tata Power’s debt had snowballed due to the lingering uncertainty related to tariff hike at its imported coal-based Mundra power plant and the acquisition of Welspun’s renewable energy assets, Rupesh Sankhe, vice president, research-power & renewables at Elara Capital, told BloombergQuint. The company’s ongoing capex in the transmission, distribution and renewables segments also weighed heavily on debt.

The power generator has been working on a turnaround plan to strengthen its business and pare debt. Tata Power plans to raise more than Rs 7,500 crore from share and asset sales. It has already mopped up nearly half of that by selling its shipping assets and a preferential allotment. The InvIT will further help deleverage its balance sheet.

Tata Power filed an application to set up the InvIT, the informed exchanges on Oct. 15. Anchor investors in the InvIT have started their due diligence of assets proposed to be transferred to InvIT and company expects to sign binding documents in coming months, it said. All approvals are expected by March.

Assets Transfer

The company will transfer solar and wind farms with a generation capacity of about 2,600 megawatts to the InvIT.

Renewable energy comprises 35% of the total generation capacity of the power producers and its share is expected to rise to 50% by fiscal 2025, Praveer Sinha, managing director and chief executive officer at Tata Power, told BloombergQuint in an interview. The company won’t add coal-based capacity in the future, he said.

Debt Transfer

Sinha said that about Rs 11,000-12,000 crore worth of debt will go off the power producer’s balance sheet to the InvIT.

Estimates from brokerages including Emkay Global, Morgan Stanley and Elara Capital also suggest that the company will transfer around Rs 11,000-crore liabilities of the renewable portfolio to the infrastructure trust.

Debt Reduction Plan

Besides the InvIT, the company plans to raise another Rs 7,500 crore. This includes the potential sale of assets in the strategic engineering division, Indonesian coal mine and hydro plants in Zambia and Georgia. It has already raised Rs 2,300 crore by selling three ships and a preferential allotment of Rs 2,600 crore.

Together, the InvIT and asset sales will bring down its debt by nearly half. That will help the company meet its guidance of reducing its net debt to Rs 25,000 crore by March.

The company has delivered so far on its promise of asset monetisation, according to Anuj Upadhyay, an analyst at Emkay Global, wrote in a report. The impending divestments, along with the transfer of renewable assets in InvIT, would help the company reduce net debt to Rs 25,000 crore in the ongoing fiscal of 2021.

Moreover, an InvIT is required to distribute 90% of the cash profit to holders of units. That, according to Emkay Global, will provide Tata Power regular cash flows, helping it offset losses from Mundra power plant on account of costlier imported coal.