Tata Power to Raise ₹2,000 Crore Through Bond Issuance

Tata Power is preparing to tap into the bond market to raise ₹2,000 crore. Sources familiar with the matter indicate the bond sale is likely to commence on Thursday. The proceeds from this issuance are earmarked for several key areas, including refinancing existing debt, investing in renewable energy initiatives, and covering general corporate expenses.

The power company intends to issue two tranches of securities, each aiming to raise ₹1,000 crore through the sale of three- and five-year non-convertible bonds. This move signifies Tata Power's return to the bond market after a hiatus of more than two years.

According to sources involved in the deal, the three-year bond, maturing on December 19, 2028, is expected to be priced at 7.05%, while the five-year bond, maturing on December 19, 2030, is likely to be priced at 7.25%. Financial institutions such as mutual funds, insurance companies, and banks are anticipated to be the primary subscribers to this offering.

ICICI Bank and Yes Bank are acting as the arrangers for the bond issue. Each of these lenders is expected to subscribe to ₹300 crore worth of the bonds, leaving ₹1,400 crore available for other investors. The bonds are expected to be issued on Friday, December 19.

According to a second source, Tata Power strategically utilizes the bond market based on its specific financial requirements, preferring short-term refinancing for liquidity management over relying on on-tap credit lines from banks. This bond issuance represents another instance of this approach.

Rating agencies Crisil and India Ratings & Research (IND-Ra) have assigned a AA+ rating to this bond issue. IND-Ra noted that the company's rating is supported by stable cash flows, reduced AT&C (Aggregate Technical and Commercial) losses at its Odisha distribution companies (discoms), and the financial strength associated with being part of the Tata Group.

That said, the reality is a bit more complicated. IND-Ra cautioned that significant debt-funded capital expenditure without corresponding equity infusion or a decline in the combined profitability of the Mundra plant and coal special purpose vehicles (SPVs) could negatively impact the company's rating.

Tata Power is also in the process of establishing a 10 GW ingots-and-wafers manufacturing facility in Odisha. Ingots and wafers serve as essential raw materials in the production of solar cells, solar panels, and semiconductor chips. With an existing cell and module manufacturing capacity of 4.55 GW, Tata Power aims to integrate the production of ingots and wafers into its solar cell and panel manufacturing operations for both internal use and export purposes. Currently, Tata Power's cell and module capacity includes 4.3 GW in Tirunelveli, Tamil Nadu, and 250 MW in Bengaluru.