Tata Power gets the ball rolling on monetising non-core assets

This deals would, however, give Rs 43.85 bn against Tata Power's consolidated debt of Rs 489.82 bn

Even as its Mundra Ultra Mega Power Project (UMPP)’s fate hangs fire, private power producer Tata Power gets the ball rolling on monetizing non-core assets. Analysts see the three deals announced in March as a step in the right direction and a small relief on its debt profile even though Mundra concerns continue to loom. 

In March alone, Tata Power announced multiple sale deals to the tune of Rs 43.85 billion. On March 29, it said it would sell its defence business to Tata Sons’ subsidiary Tata Advance Systems for an enterprise value of Rs 22.30 billion. The company on March 23 said it would sell its stake in Panatone Finvest to Tata Sons for a value of Rs 15.42 billion and stake sale in Tata Communications to Panatone for for Rs 6.13 billion. 

This deals would, however, give Rs 43.85 billion against Tata Power's consolidated debt of Rs 489.82 billion. “The Rs 40 billion from asset sales, for a consolidated debt of Rs 489 billion, which means interest cost lower by Rs 4 billion, it helps little less than Rs 4 billion,” said an analyst with a domestic brokerage firm, on how the deal may help the company on a quarterly basis. The expectation is the asset sale is a step to improve the company’s debt profile. 

The three deals are subject to various approvals. Analysts expect the proceeds from the deal will reflect in the June quarter. Not all of Rs 43.85 billion is expected to come in short term. Of the enterprise value of Rs 22.30 billion for the defence business, Rs 10.40 billion is payable at the time of closing and Rs 11.90 billion after achieving certain milestones. “I expect the second part of the deal proceeds to take two to three years to show up,” said Rupesh Sankhe, analyst with Reliance Securities. 

Nevertheless, analysts see sale of the defence business as a good move. “It is good they are doing this, defence is something that market never valued, as no one could estimate what was happening in the sector,” said the analyst quoted earlier in the story, referring to Tata Power’s holdings in various subsidiaries as a treasure chest. Part of the monetizing this treasure chest, is plans to sell stakes in Tata Projects, Tata Ceramics and completion of the announced deal for the Indonesian mine. Though the deals are seen as a step in the right direction, Mundra continues to remain the main concern.

“The sale announced in March will help reduce debt by about 10%. Though these sales are a good move, until Mundra is resolved, which is the major contributor to the consolidated debt, not much improvement is expected,” said Rupesh Sankhe, senior analyst with Reliance Securities. 

“Tata Power’s success in selling a majority stake in Mundra UMPP to state distribution companies and associated debt transfer of over Rs 100 billion to them is the key upside risk,” analysts with JP Morgan said in a 26th March report, which termed the divestment from Tata Communication a step in the right direction.

Not much relief is seen in the near future on Mundra, as discussions between the various stakeholders including power procurers for the Mundra plant continue. “Discussions are on at a slow pace, no resolution has arrived at so far. The expectation is it will continue to move at this pace,” said a person with direct knowledge on this development. Concerned spokesperson refused to make any forward looking comments.

For the December quarter, Mundra subsidiary Coastal Gujarat Power (CGPL) made a net loss of Rs 2.79 billion. Analysts expect this loss to be at about Rs 2.20 billion for the quarter ending March 2018.