Close to two years since the deal was announced, various financial liabilities, statutory liabilities and contractor claims have forced Tata Power Company Ltd to revise the deal value for its 30 per cent stake sale in PT Arutmin, Indonesia and related trading and infrastructure companies downwards from $510 million agreed earlier, to $400 million.
"Consequent to certain closing adjustments to the sale consideration and other changes agreed between the parties, the selling companies (Tata Power's subsidiaries, Bhira Investments Limited and Bhivpuri Investments Limited) have signed revised definitive agreements with PT Cakrawala Langit Sejahtera (PT CLS), a Bakrie group entity on November 28, 2016," the company said in the statement.
As part of the deal revision, the sale consideration for PT Arutmin has been revised to $246.64 million from the earlier value of $390 million. The adjustments are related to prior period liabilities, settlements over mining contractor claims, a court order and other statutory liabilities of $50 million, the company said. The sale consideration for the related infrastructure assets has been revised upwards to $154.28 million from the earlier value of $120 million, pursuant to closing adjustments. The proceeds are to be received in a phased manner.
Even as the deal value for the said assets has reduced, analysts expect the final deal value to help fast-track the deal which has been languishing for almost two years. Among various other reasons, the deal has, in the past, also faced resistance from its lenders over the assets, which were placed as security for some of the company's loans.
"Two years back when the deal was announced the value was subject to closing adjustments, so the revision in deal value is fine. Once cash flows from the deal start coming, it will be a credit positive for the company. With the final deal value, it may be difficult to put a timeline on deal closure, but from this point it may not take too long," said Pawan Matkari, analyst with Care Ratings, which has a rating view on the company.
Two other analysts tracking the company agreed the deal revision is not a major negative for the company, as the underlying value of the assets remains the same. "The underlying value of the assets remains the same; the revision is to adjust for certain liabilities. The revised value is realistic in the current market scenario," said an analyst from a domestic brokerage firm who did not wish to be quoted.
Higher imported coal prices to weigh on Mundra
Even as the company looks to get its act right with its stake in the Indonesian coal mines, pressure on its Mundra unit closer home is likely to continue. Tata Power's Achilles heel continues to hurt as its Mundra ultra mega power plant (UMPP) reported yet another quarter of operating loss, at Rs 80 crore in the three month period ending September 2016.
So far in the first half of the current financial year, Coastal Gujarat Power Limited (CGPL) has reported a combined loss of Rs 463 crore.
Analysts expect CGPL's loss for the second half of the fiscal 2016-17 to be higher. "With the new accounting standards it is difficult to draw a comparison, however, under recoveries are higher in the September quarter compared to the quarter last year. I expect under recoveries to continue to remain higher compared to the last year, CGPL should end the year with the same or higher loss against FY16," said an analyst from a domestic brokerage firm who did not wish to be identified.
Tata Power had reported a Rs 306 crore loss for CGPL in financial year 2015-2016. However, the comparative number will change with the company now adopting the new accounting standards. Based on the new accounting standards, CGPL September 2015 quarter loss alone was at Rs 441 crore.
"The losses for CGPL would be higher than financial year 2015-2016 because of higher coal prices. The profits from the Indonesian coal mine due to high coal prices comes with a lag effect and Mundra and Indonesia asset are in two different tax regimes, which leads to some tax erosion," said Rahul Modi, analyst with Antique Stock Broking. Analysts also added the sale of its stake will also further diminish gains at the consolidated level from high coal prices owing to its mining presence.
The stress in the company's Mundra unit has also been raised amongst other issues in the Tata-Mistry boardroom battle. In a October 27 letter sent to Tata Sons board, the group's ousted chairman Cyrus Mistry accused Tata Power of aggressively bidding for the Mundra project assuming low-priced Indonesian coal.
Tata Power had quoted competitive tariffs for the Mundra UMPP based on an expectation of imported low priced coal from its Indonesian mines. However, a change in Indonesia's export policy for coal turned Mundra's fortunes making running the plant on Indonesian coal an expensive affair. In his October letter, Mistry also warned of further impairments likely to be taken on account of Mundra's financial health. Tata Power has been legally seeking a compensatory tariff over the change in Indonesian laws since 2012, but these legal battles so far have failed to reach any conclusion. The losses at Mundra have eroded Rs 3,985 crore of Tata Power's net worth in the past three years.
An email query sent to Tata Power on CGPL remained unanswered.