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The extra time may help the operator turn around Indias biggest power plant by allowing it to seek higher tariffs and find cheaper fuel
Tata Power Co., Indias third-most indebted generator, is negotiating with lenders to avoid penalties after it failed to meet conditions on $2.3 billion of loans taken to build its largest plant.
The company was in violation of loan covenants as of 31 March 2012, and won waivers from fines which lapsed on 30 June, according to Moodys Investors Service and exchange filings. Tata Power is asking creditors to extend the exemption, S. Ramakrishnan, executive director of finance at the company, said in an interview.
The extra time may help the operator turn around Indias biggest power plant by allowing it to seek higher tariffs and find cheaper fuel, according to Sachin Mehta, an analyst with Centrum Broking Pvt. The unprofitable Mundra plant in Indias Gujarat state has weighed on earnings at Tata Power, which has reported two straight years of losses.
Lenders have nothing to gain from pulling the plug, said Mumbai-based Mehta. Losses from the plant in Mundra neutralize the earnings from other businesses. Once this big drag is lifted, Tata Powers fundamentals will improve and its covenants will fall in line.
Tata Powers plan to ensure cheap fuel from Indonesia, where it owns stakes in three mines, went awry after the Southeast Asian nation benchmarked exports to global prices. Tata Power is unable to pass on the costs as it had agreed to sell power at a fixed rate.
The company failed to meet debt-to-equity and debt service coverage ratios, Moodys said.
Tata Powers shares, which have dropped 19% this year, rose 0.7% to Rs89.2 in Mumbai on Tuesday. Yields on Tata Power Ltds 10.75% rupee-denominated notes maturing August 2072 fell six basis points to 10.67% 11 July, according to Fixed Income Money Market and Derivatives Association of India prices.
Indias second-largest generator bought stakes in PT Kaltim Prima Coal and PT Arutmin Indonesia, both controlled by PT Bumi Resources, and a 26% share in PT Baramulti Suksessarana to ensure supply of the fuel.
Tata Power plans to transfer at least 75% of its stake in the Indonesian mines into the unit that runs the Mundra power plant in order to provide protection and to support its cash flows, to placate lenders, the company said in exchange filings on Feb. 11.
The company is also seeking cheaper coal assets in the US, Canada and Colombia, managing director Anil Sardana said in an interview in April.
The issue here is how long will it be before waivers are extended and whether the lenders impose onerous conditions, Ray Tay, Singapore-based associate vice president at Moodys, which cut its outlook on Tata Powers B1 non-investment grade rating, said in an e-mail. There will be uncertainties in the meantime.
Tata Power has Rs35,100 crore ($5.9 billion) of debt making it Indias third-most indebted generator after NTPC Ltd. and Adani Power Ltd., according to data compiled by Bloomberg.
Export-Import Bank of Korea, International Finance Corp., and Asian Development Bank, BNP Paribas SA along with other lenders are part of a group of creditors, which lent Rs14,000 crore, or three-quarters of the total cost of building the Mundra plant that generates nearly half of Tata Powers 8,521 megawatt capacity.
H J Shim, spokeswoman for EXIM Bank of Korea declined to comment, citing on-going negotiations. IFC spokeswoman Minakshi Seth didnt respond to an e-mail and four calls, while both ADB spokesman Rajesh Kumar Deol and BNP Paribas Indias spokeswoman Anjali Patil declined to comment.
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