Tata Power may sell cross-holdings after Mundra tariff order

Tata Power would consider selling non-core assets to support the Mundra plant following a Supreme Court ruling against compensatory power tariffs, it told investors on Monday. 

The non-core assets included cross-holdings at the Tata group level, the company added. Tata Power holds stakes in seven listed companies of the group, including Nelco, Tata Communications and Voltas. It also has a stake in the unlisted Tata Teleservices. 

Analysts said Tata Power’s valuation per share reflected Rs 12-15 invested in the telecom business and Rs 6-7 invested in the other businesses. 

At current valuations, Tata Power’s stakes in the listed group companies are likely to yield Rs 1,283 crore. The Tata Teleservices stake sale could deliver more. The Supreme Court had on April 11 disallowed compensatory power tariffs for changes in international regulations but allowed them for changes in domestic rules. 

“We are consulting legal experts what it (Section 79) means in our case. We are also consulting on whether we need to approach the Central Electricity Regulatory Commission or the Supreme Court for a clarification,” Anil Sardana, managing director, Tata Power, told analysts over a conference call. “In a situation where there are no guidelines framed at all or where the guidelines do not deal with a given situation, the Commission’s (CERC’s) general regulatory powers under Section 79(1)(b) can be used,” the Supreme Court order had added.

Sardana said Tata Power would look at all options to monetise non-core assets, adding these included cross-holdings at the group level and investments related to the power chain but not to power generation.

In addition, Tata Power will change its coal-sourcing arrangements to make the Mundra plant viable.

Tata Power may sell cross-holdings after Mundra tariff order. “With the Supreme Court order, we will look at other countries, including the US and Africa, to source coal. We will also look at countries that are willing to sell on a cost-plus basis under a long-term arrangement,” Sardana said. He did not rule out sourcing domestic coal.

Tata Power informed analysts most of the interest cost of Coastal Gujarat Power (CGPL), the special purpose vehicle for the Mundra plant, was met by the subsidiary. “Debt repayment has to be supported by the parent, which is annually in the range of Rs 400-1,000 crore depending on coal prices,” the management said.

CGPL has debts of Rs  11,000 crore at an average cost of 10.25 per cent and Tata Power has another Rs 4,000 crore at a standalone level. “We have no intention for further debt funding, but we will look at debt restructuring,” Sardana told analysts. On earlier plans to add more units at Mundra, Sardana said, “That is under review due to lack of demand, and not because of the order.”