Tata Power may rope in funds to push renewables growth
Tata Power BASE -3.41 % may bring on board strategic investors to fund growth in its renewable energy business, its chief executive Anil Sardana said a day after the firm announced adeal to buy a little over one gigawatt of renewable assets from Welspun. The $1.3-billion transaction —the largest green energy buyout in the country till date — will help the Tata Group firm almost double its own green energy portfolio to 2.3 GW. “We wanted to bring our renewable portfolio to scale. The acquisition along with our own organic pipeline is a step in that direction,” Sardana told ET on Monday. “We can explore roping in investors to fund the current or even future growth plans,” he added. Sardana did not name any potential investor. Explaining the acquisition rationale, he said the company chose to buy than build to save on time and cost. “Almost the entire revenue from these solar assets will start showing from our bottom line immediately after we complete the transaction. It is value accretive from day one and they will pay for their own debt and dividend right away… Whatever we earn from our organic establishment we expect to earn the same, if not more, from the Welspun assets,” he said. The company’s management is confident these will generate 15-16% internal rate of return. There is also additional land available for future expansion that can be exploited depending on sub-station and transmission capacities available, Sardana said. Even though the salt-to-software conglomerate was among the earliest to venture into solar energy, way back in 1989 through a joint venture with BP, Tatas’ solar play has been modest compared to some local peers. “We have seen sharp fall in silicon prices. We had waited for capex cost to stabilise and tariffs to come close to grid parity before setting ambitious rollouts,” said Sardana. After the Welspun deal, Tata Power will have the largest solar portfolio in the country. The firm is finalising funding plans for the acquisition. It has to pay .`3,750 crore for the equity and inherit Rs 5,500 crore of debt, which it plans to refinance. “We will at first explore all options of raising low cost debt initially and rely on internal resources,” said Sardana. The transaction is expected to close in September. Investment banking sources said the company plans to tap the domestic corporate bond market. They also said the rationale behind floating Tata Power Renewable Energy Ltd (TPREL) as a wholly owned subsidiary of Tata Power was to rope in a financial partner. “Patient capital, especially from sovereign wealth and pension funds, are eager to partner bankable renewable projects,” said a Mumbai-based consultant specialising in renewable energy.
Greenko, ReNew Power and even Welspun had institutional financial support, said the person who requested not to be named because he is not his firm’s spokesperson. “A name like Tata will attract the best of names at a time,” he said. TPREL’s present operating capacity is 294 MW, comprising 240 MW of wind energy and 54 MW solar, located in Maharashtra, Gujarat, Madhya Pradesh, and Rajasthan. The company is in the process of implementing nearly 500 MW of renewable power projects at various locations. In order to aggregate its clean and renewable energy portfolio, Tata Power has initiated the process of carving out its 500 MW clean energy assets from its books into TPREL. The Welspun acquisition will help TPREL grow to about 2,300 MW, making it one of the largest renewable energy players in the country. Tata Power aims to double its total generation capacity from the current 10 GW by 2025. Of that, it has decided to earmark 30-40% from non-fossil fuel sources. Canadian pension funds Caisse de Depot et Placement du Quebec (CDPQ) and Canada Pension Plan Investment Board (CPPIB) are proactively seeking investment opportunities in the fast growing Indian renewable energy space. CDPQ has made a commitment to invest $150 million in local clean tech initiatives. It is also in advanced discussions with some other deep pocket investors including State General Reserve Fund of Oman (SGRF) and Kuwait Investment Authority, along with Tata Power and ICICI Venture, to ink a joint venture platform to buy out troubled power assets in India. The three global investors are together investing around $650 million of equity to create a dedicated pool of $850 million, making it one of the largest commitments from SWFs and pension capital in the country so far.