Home >Companies >Tata Power focuses on correcting dollar asset-liability mismatch

Mumbai: Tata Power Co. Ltd, the power generation arm of the Tata group, will take around five years to correct the mismatch between its dollar-denominated assets and liabilities that has resulted in a net loss in the last couple of years, said chief executive and managing director Anil Sardana.

The power producer has suffered since 2011, due to an unforeseen rise in the price of Indonesian coal that feeds its Mundra power plant and the rupee’s sharp fall against the US dollar which resulted in foreign exchange losses.

In fiscal 2013, Tata Power reduced its net loss to 85.43 crore from the huge loss of 1,087.68 crore it posted in fiscal 2012.

According to Tata Power’s fiscal 2013 annual report, the combined assets of Tata Power’s six foreign subsidiaries stood at 5,056.82 crore while total liabilities amounted to 10,253.07 crore. The exchange rate was assumed at 54.38 per dollar, according to the company’s annual report. The firm has a debt of around 30,000 crore at present, of which $1.7 billion (around 10,468 crore at Thursday’s exchange rate) is foreign debt.

The problems arose when many Indian power companies acquired coal assets in Indonesia around 2007 to secure the natural resource at favourable prices for their power projects—both existing and upcoming—in India.

But in 2011, the Indonesian government decided to amend existing contracts with these power producers to link the price of coal to an international benchmark. This made Indonesian coal more expensive and jeopardized the financial model on which power plants of significant capacity were being commissioned in India.

Between July and September, the rupee depreciated around 11% against the dollar, wiping off any potential gains.

Sardana said Tata Power will have to continue importing coal from Indonesia over the lifetime for the 4000 megawatts-Mundra power plant, service debt in dollar terms, and import spares and other equipment for which it needs dollars.

He added that it wasn’t possible to manage all these risks out of the cash flows from the Indian operations alone.

To address the situation, Sardana said the company is focusing is on expanding operations overseas to create a dollar revenue stream.

Tata Power has a slew of projects under implementation abroad. They include hydro power projects in Georgia, wind power projects in South Africa, a geothermal power project and two coal mines under development in Indonesia.

Most of these are likely to start generating revenues from mid-2016, which would gradually help Tata Power achieve a “good counterbalance" of dollar assets and liabilities on its books, said Sardana.

This won’t be easy, though, say analysts.

“Not just Tata Power, but a lot of other companies are looking at a financial structure of equating liabilities and assets in the same currency," said Rahool Panandiker, principal at Boston Consulting Group. “But it will be easier said than done, especially in the power sector. One needs to find an asset in the same currency as the existing liability, and ideally this asset should have great cash flows. It’s hard to find such an asset these days."

Tata Power’s poor financial performance has taken a toll on the company’s stock price as well. Over the last one year, the company’s share price on the Bombay Stock Exchange (BSE) has fallen around 24%, while the benchmark Sensex has risen around 8%.

On Friday, Tata Power gained 1.27% on BSE to close at 79.75 per share, while the benchmark Sensex rose 2.29% to end at 20,882.89 points.

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