Tata Power to raise $300-400 mn through hybrid financing

Tata Power today said it plans to raise $300-400 million through its overseas subsidiary by issuing corporate hybrid securities to part-fund its growth plans.

Tata Power said in a statement that the company would raise funds by issuing "60-year bonds" with a lock-in period of five years.

The final size of the offer, however, will be determined by market demand and the terms of the transaction will be announced shortly, it added.

However, the company did not name the overseas subsidiary and its spokesperson refused to provide related details.

The aforesaid offering is proposed to be guaranteed by Tata Power, it added.

Tata Power's Executive Director (Finance) S Ramakrishnan said, "This long-term financing enhances our ability to achieve our strategic goals of securing sustainable sources of supply for our rapidly growing power generation base."

For the fund raising, the company has appointed Deutsche Bank, Goldman Sachs and UBS AG as joint book-running lead manager (BRLM).

The announcement of Tata Power comes just a month after another group firm, Tata Steel raised Rs 1,500 crore ($332 million) by issuing a perpetual bond issue.

The innovative mode of financing used by Tata Steel had made it the first-ever company to issue such hybrid corporate bonds in the country. The money raised by Tata Steel are perpetual in nature with no maturity or redemption and are callable only at the option of the firm.

A hybrid security has characteristics of both debt and equity and the securities allow higher flexibility for corporate financing while reducing capital costs for issuers.

At the same time, it adds to the investors' choices for portfolio allocations. Fund raising through such securities are common in the US and Europe, while it is now catching up in Asia.

According to Tata Power, the funds raised through hybrid financing mode could be utilised to secure further long-term coal supplies by investing in coal mines or assets outside India as well as for repayment of the existing loans.

The company currently has over 3,100 MW power generation capabilities in thermal, hydro, solar and wind energy, while construction of an additional 5,500 MW capacity is going on.

The upcoming projects of the company include the 4,000-MW ultra mega power project at Mundra in Gujarat, whose first unit is expected to be commissioned in August, 2011.

Shares of the company closed the day in the red at Rs 1,303 apiece on the Bombay Stock Exchange, down 0.29% from the previous close.