Mumbai: As Tata Power Co. Ltd embarks on the “next wave” of power projects aggregating 6,000MW, the firm is open to all options, including selling telecom investments to fund projects, a senior executive of the company said.
Tata Power is currently in the process of tripling its total power generation capacity to 9,138MW by 2014 from 2,837MW. “All our projects are on schedule and some ahead of schedule,” S. Ramakrishnan, executive director of Tata Power, said.
New plans: Technicians at the Tata Power plant in Trombay. Santosh Verma / Bloomberg
Among the other options to fund the second phase of expansion is the sale of equity, convertible bonds and even inviting partners for power projects, Ramakrishnan said.
He was unequivocal about selling stakes in the Tata group’s telecom companies. “We’ve been selling, and we’ll continue to sell.”
Ramakrishnan added that the sale will happen at an appropriate time. “When (it will take place), is a function of price and opportunity. We have not worked out plans, because it depends on the actual timing.”
The new projects aggregating 6,000MW are to be located in Jharkhand, Orissa and a coal-based power project in Maharashtra. The new projects will entail the company acquiring coal assets or entering into long-term contracts for thermal coal. In addition, it plans to set up new wind energy capacities of 100MW every year, by tweaking its model. The new plan is to acquire land and set up wind farms instead of outsourcing the generation of wind energy to turbine makers. The company is currently conducting trials on Bharat Forge Ltd’s new higher capacity wind turbine of 2MW. The company had raised $335 million (Rs1,561 crore) through global depository receipts representing 14.8 million shares. Last week, the firm announced plans to raise another $250 million in foreign currency convertible bonds (FCCBs). But going forward, the chances of raising debt would be limited, and that is where the telecom assets come into play.
The company owns 8% of Tata Teleservices Ltd (TTSL), 7% of Tata Teleservices (Maharashtra) Ltd, 17% of Tata Communications Ltd and 40% of Panatone, a holding firm for some of the group’s telecom assets.
Tata Power had divested small tranches of TTSL shares to Tata Sons Ltd, the main holding company of the group, in 2008, and in the recent past divested a portion of TTSL’s stake to NTT DoCoMo Inc. The company is said to have sold TTSL shares to the Japanese company at Rs116 a share. The telecom assets are worth at least Rs3,700 crore, as a large chunk of the assets, namely TTSL shares, are not listed. The valuations are estimates by Ambit Capital Pvt. Ltd.
There are only two likely buyers for TTSL shares—Tata Sons or NTT DoCoMo. “The first option is to sell within the group,” Ramakrishnan said. The decision on funding the slew of new projects will be taken once the management takes the proposal to the board. “We’ll go to the board for approvals (for the various projects) in the next 6-12 months,” he said.
Analysts tracking Tata Power agree that the group has received funding commitments for projects, but the huge amount of investment needed to get them started could impact the company’s finances in the long run. Typically, setting up 1MW of power requires Rs4.5 crore. “Power projects usually have a 70:30 or a 80:20 debt-to-equity ratio. This high debt could be a problem,” said an analyst, who declined to be named as she’s not authorized to speak to the media.
In an analyst report on Tata Power, analysts Venkatesh Balasubramaniam, Deepal Delivala and Atul Tiwari wrote: “We believe it is a little too early to value the 6,200MW of pipeline projects where the company is yet to crystallize plans. As a consequence, after maintaining a buy/low-risk rating on the company for two years, we downgrade Tata Power to hold/low.”
Ramakrishnan expects the new projects to come closer to announcement (financial closure) in another 12-16 months. Ambit Capital has put the total funding requirement to be around Rs18,700 crore over the next four years. But this does not include investments for the new projects. The new plans are ambitious and there is the challenge of finding coal linkages.
“If after investing so much there are no coal linkages then projects would finally be hit,” said an analyst with a private brokerage who declined to be named because her firm does not allow her to speak to the media. Ramakrishnan agrees.
Total generation is targeted to swell to 15,000MW, but the company doesn’t plan to stop there. “We put no cap. In India, the cap is on getting the land and coal assets (for setting up the project),” he said.
The company has Rs1,338 crore of investments including shares, mutual funds, debentures and government securities. It has increased investments in subsidiary firms to Rs2,249 crore in 2008-09 from Rs1,255 crore in the previous year, said Rabindranath Nayak, power analyst with Systematix Shares and Stocks.
“Some of these investments like in the subsidiary Nelco are strategic which they may not want to sell. I don’t think they would want to dilute equity. They would probably prefer another FCCB issue next year.”