Tata Power on Thursday said the company’s board has approved an equity raise from its promoters for Rs 2,600 crore. In turn, Tata Sons' stake in the company will increase to 45.21 per cent.

Tata Power‘s board also approved setting up an infrastructure investment trust (InvIT) for its renewables business. The move, the company said, it part of a strategic turnaround plan.

The company in its statement said, Tata Power will raise Rs 2,600 crore through a preferential issue to Tata Sons at a price of Rs 53 per equity share. The issue price for the equity shares has been fixed representing a 15 per cent premium to yesterday’s closing price.

In its statement to BSE, Tata Power said, “The board of directors of Tata Power has approved issuance of 49,05,66,037 equity shares on a preferential basis to Tata Sons for an aggregate consideration of Rs 2,600 crore.” The issue is subject to approvals and Tata Power will seek shareholder approval at its annual general meeting on July 30.

Pursuant to the equity issue, Tata Sons’ shareholding will increase to 45.21 per cent from 35.27 per cent. Consequently, Tata Group’s shareholding will increase to 46.86 from 37.22 per cent.

“The support of Tata Sons signals their strong conviction in the future prospects of the Company. This benefits all shareholders by reducing debt, allowing the business to continue to invest and execute its long-term growth strategy,” the company said in its statement.

The company’s board also gave an in-principle approval for setting up of an InvIT for its renewables business on terms and conditions to be discussed with potential investors.

“Tata Power is working on a strategic turnaround plan to strengthen the fundamentals of the Company through a mix of divestment and business restructuring that will deleverage the balance sheet and improve the capital structure of the company,” it said in the statement.

Divestment of non-core and certain overseas investments, restructuring of some of its businesses to unlock value and simplify the structure of the company and its subsidiaries are some of the key points in the turnaround plan.

The statement added, raising of equity will help reduce unsustainable debt in Tata Power and or its subsidiaries.

Praveer Sinha, chief executive officer and managing director for Tata Power said, “This equity raise demonstrates the confidence reposed by the Tata Group in the Company’s capabilities. Similarly, the Board’s in-principle approval for setting up of an InvIT, is another important step towards restructuring the renewables business and unlocking value.”

He added, “This along with the divestment of various non-core and overseas assets will help in deleveraging in preparation for an ambitious growth plan over the next decade.”