Tata Power to raise Rs 2,600 crore from Tata Sons via preferential issue

Tata Power board approves setting up of renewables InvIT

Private power producer Tata Power on Thursday said the company’s board had approved an increase in its promoter Tata Sons’ stake to 45.2 per cent for Rs 2,600 crore.

Tata Power’s board also approved setting up an infrastructure investment trust (InvIT) for its renewable business on Thursday. The move, the company said, is part of a strategic turnaround plan.

The company in its statement said Tata Power would raise Rs 2,600 crore through a preferential issue to Tata Sons at a price of Rs 53 per equity share.  The issue price for the equity shares has been fixed, representing 15 per cent premium to Wednesday’s closing price. Pursuant to the equity issue, Tata Sons’ shareholding will increase to 45.21 per cent, from 35.27 per cent. Consequently, Tata Group’s shareholding will increase to 46.86 per cent, from 37.22 per cent.

In its statement to the BSE, Tata Power said, “The board of directors of Tata Power has approved issuance of 490,566,037 equity shares on a preferential basis to Tata Sons  for an aggregate consideration of Rs 2,600 crore.” The issue is subject to approval and Tata Power will seek shareholder approval at its annual general meeting on July 30.

“The support of Tata Sons signals its strong conviction in the future prospects of the company. This benefits all shareholders by reducing debt, allowing the business to continue to invest, and execute its long-term growth strategy,” the company said.

The company’s board also gave in-principle approval for setting up of an InvIT for its renewable business on terms and conditions to be discussed with potential investors. “Tata Power is working on a strategic turnaround plan to strengthen the fundamentals of the company through a mix of divestment and business restructuring that will deleverage the balance sheet and improve the capital structure of the company,” it said in the statement.

According to the company’s latest presentation, Tata Power’s consolidated renewable capacity was at 2,623 megawatt, 2019-20 revenue at Rs 3,977 crore and a profit after tax at Rs 441 crore for the year. Net debt for its renewable portfolio stands at Rs 10,622 crore.

Divestment of non-core and certain overseas investments, restructuring of some of its businesses to unlock value, and simplify the structure of the company and its subsidiaries are some of the key points in the turnaround plan.

The statement added raising of equity will help reduce unsustainable debt in Tata Power and its subsidiaries.

With this equity issue announcement, Tata Power joins companies like Vedanta, Adani Power, Reliance Power, and Reliance Infrastructure, where promoters have either announced plans to increase stake or delist the company altogether. At the group level, Tata Sons also raised its stake in Tata Chemicals by acquiring shares from other companies in the last quarter.

It acquired nearly 7 million shares from Tata Consumer and around 160,000 shares from Tata Coffee. Analysts said this was another way to infuse fresh capital into Tata Consumer, which is on a diversification path after it acquired the consumer and food business of Tata Chemicals.

Tata Sons has also been active in the secondary market and has acquired additional shares in various group companies through open market transactions. In March, Tata Sons acquired additional shares in Indian Hotels, Tata Chemicals, Tata Investment Corporation, Tata Steel, Tata Power, and Tata Motors DVR through open market transaction on the bourses, taking advantage of the market correction due to the Covid-19 pandemic.