Tata Power to sell stake in coal SPVs to PE fund

Deal with Olympus Capital to raise Rs 1,390 crore, to reduce debt taken to assure supply for Mundra UMPP.

Tata Power Company (TPC), India’s largest private sector power firm, will raise $300 million (Rs 1,390 crore) from private equity fund Olympus Capital, by selling 14-15 per cent stake in its two special purpose vehicles (SPVs) that own 30 per cent in KPC and Arutmin, which own the Bumi Resources coal mines in Indonesia.

The stake sale is to clear current debt of $675 million (Rs 3,133 crore), which Tata Power raised to buy stake in the mines in June 2007 for $1,225 million (Rs 5,690 crore), and to fund additional acquisitions. It has to repay a short-term loan of $70 million (Rs 325 crore) in July, part of the debt taken for the Indonesian acquisition.

TPC has signed an agreement to raise $300 million in Bhira Investments Ltd and Bhivpuri Investments Ltd Coal SPVs through shares, with differential rights to be issued to Olympus Capital Holdings Asia (Olympus Capital), it said in a press release.

Olympus Capital Holdings Asia is a 13-year-old private equity company, with offices in Hong Kong, New Delhi, New York, Seoul, Shanghai and Tokyo. Its investment portfolio in India includes Orient Green Power, a renewable energy company sponsored by Shriram EPC and Quatrro BPO Solutions. The lead investor in the Olympus Capital-controlled vehicle investing in coal SPVs is Olympus Capital Asia III. Investors in this fund include leading pension funds, financial institutions, endowments and family offices from North America, Asia, Europe and the Middle East, said the release.

“This long-term, flexible financing enhances our ability to achieve our strategic goals of securing sustainable sources of supply for our rapidly growing power generation base,” said Prasad Menon, managing director, Tata Power.

He said TPC would try to expand this strategic partnership with Olympus into other areas of common interest, given their on-the-ground presence through Asia and expertise in the energy and power sector. Olympus had approached Tata Power with this transaction idea last year, said S Ramakrishnan, executive director, TPC.

Tata Power has two other subsidiaries, Trust Energy Resources, incorporated in Singapore for owning ships to meet shipping requirements and trading in fuels, and Energy Eastern Pte Ltd, incorporated for chartering eight ships to bring coal to India. Tata Power is setting up a 4,000 Mw ultra mega power project (UMPP) at Mundra in Gujarat’s Kachchh district. It requires 11-12 million tonnes per annum (mtpa) of imported coal. The company has an offtake agreement with KPC and Arutmin for 10.11 mtpa, plus or minus 20 per cent. It is looking for additional mines in Australia, Mozambique and South Africa to bridge the gap.

Tata Power had taken a bridge loan of $950 million, borrowed by Tata Power (Cyprus) Ltd (now named Bhivpuri Investments) and fully guaranteed by the Company. Another $273 million was borrowed as shareholder loan from Tata Power to Tata Power (Mauritius), now named Bhira Investments. The bridge loan was subsequently refinanced and the current outstanding debt is $335 million as non-recourse and $340 million as recourse debt.

TPC said the investments by Olympus will be in the form of differential rights (Class B) shares, with no dividend rights, which are the subject of a capital protection arrangement at the end of five years from the date of closing the transaction, unless converted. These Class B shares are fully convertible into ordinary shares through the end of the fifth year from the date of closing, at the option of the holders of these shares. The capital protection arrangement could be serviced either from Tata Power or the coal SPVs.

Olympus Capital hired Macquarie Capital Advisors India to advice on the transaction and Barclays Capital to provide financing and act as financing structuring advisor, said the release.