Tata Power’s move to acquire Welspun Renewables may impact its credit metrics, says Moody’s

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Tata Power’s acquisition of Welspun Renewables’ assets could negatively impact its credit metrics, which are already tight at the current rating level, said Moody’s in its analysis.

 

In addition, integration challenges will likely be key considerations arising from the potential transaction, the agency said.

 

However, said the acquisition of Welspun Renewables’ 1,140 Mw assets is very strategic to it. Since these are operational assets, the returns are immediate, the company said. It doesn’t add any further burden because, right from the beginning, it starts to service its own debt and it starts to pay its own return, the company added.

Moody’s said it was not taking any rating action at this stage given the limited information about the transaction and hence the uncertainty around the potential impact of the proposed transaction on Tata Power’s credit profile.
According to Moody’s, the proposed transaction would provide Tata Power with substantial additional scale and diversification in renewable energy, which would benefit from supportive regulatory environment. However, it noted, “The transaction could negatively impact TPC’s (Tata Power Co’s) credit metrics, which are already tight at the current rating level. In addition, integration challenges will likely be key considerations arising from the potential transaction.”
Speaking on the topic, Tata Power CEO and MD Anil Sardana said, “From the revenue generated through solar assets today, almost 90-95 per cent show up in the bottom line and, therefore, whatever we expect to earn out of our own organic establishment, we expect to earn same if not more (from the acquired assets).”

Further, Sardana informed that there were a lot of extension capacities that were available in these projects, including possibilities of substation capabilities being available. Therefore, incrementally, Tata Power would be able to add a reasonable amount of capacity at much lower cost per-Mw ratio. He added that the company would continue to look for good power assets.
Sardana said the company was not very strong in solar capacity since the solar equipment prices were fast coming down. “We, therefore, were always very concerned that would we land up in a situation where you are carrying very expensive assets which you build at very expensive prices and hence look out of rhythm with the present day tariff. Tata Power waited for the solar prices to stabilise and let them come close to grid parity.”
He said the company is open to both organic and inorganic growth options. “Renewable is here to stay, as can also be seen through the government’s emphasis on the same. There should be a sizeable green portion in one’s own portfolio to ensure you assured revenue and Ebitda (Earnings before interest, taxes, depreciation and amortisation).”

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