Tata Power has struck a deal to raise $300 million by selling around 15% stake in two separate special purpose vehicles that own Indonesian coal mines to private equity firm Olympus Capital. The money is likely to be partly used to retire debt on the books of the entities and would mark one of the biggest PE funding deal involving Tata Group.
Tata Power will issue shares with differential rights in Bhira Investments Limited and Bhivpuri Investments Limited to Olympus Capital Holdings Asia. “Taking current position of debt and cash in coal SPVs, the post money shareholding of Olympus Capital may be in the range of 14-15% for an investment of $300 million,” said Tata Power in a statement.
These funds could also be utilized to secure further long term coal supplies by investing in coal mines or to reduce the outstanding debt in the SPVs, the statement added. Tata Power holds its interest in the KPC and Arutmin coal mines in Indonesia through these SPVs. In June 2007, the company had acquired 30% stake in Indonesian coal mines, KPC and Arutmin for $1.225 billion.
The investment is through Class B shares with no dividend rights which are the subject of a capital protection arrangement at the end of five years from the date of closing the transaction, unless converted. These Class B shares are fully convertible into ordinary shares through the end of the fifth year from the date of closing at the option of the holders of the Class B shares. The capital protection arrangement could be serviced either from Tata Power or the coal SPVs.
S Ramakrishnan, Executive Director (Finance) at Tata Power said, “Olympus Capital approached us with this transaction idea last year; through this volatile period, we were able to adapt the structure and valuation to current market conditions in a manner that met each of our objectives.”
The three year old Indonesian investment was funded through a bridge loan of $950 million borrowed by Tata Power (Cyprus) Ltd (now named Bhivpuri Investments Limited) fully guaranteed by Tata Power. In addition Tata Power gave $273 million as shareholder loan to Tata Power (Mauritius) Ltd. (now named Bhira Investments Limited). The bridge loan was subsequently refinanced and the current outstanding debt is $335 million as non-recourse and $340 million as recourse debt.
Tata Power is India’s largest integrated private sector power utility firm with an installed generation capacity of about 3000 MW and presence across segments such as thermal, hydro, solar and wind power generation besides transmission and distribution.
Middle market private equity firm Olympus Capital’s investment portfolio in India includes Orient Green Power, a renewable energy company sponsored by Shriram EPC and Quatrro BPO Solutions led by Raman Roy, a pioneer of India’s business process outsourcing industry. The lead investor in the Olympus Capital controlled vehicle investing in the coal SPVs is Olympus Capital Asia III, L.P., whose investors include leading pension funds, financial institutions, endowments and family offices from North America, Asia, Europe and the Middle East.
After initiating the transaction, Olympus Capital hired Macquarie Capital Advisors India to advice on the transaction and Barclays Capital to provide financing and act as financing structuring advisor.
One of the biggest PE deals this year, this also shows how energy is gaining traction as an attractive spot for PE investors in India. Early this year, a group of investors led by Morgan Stanley Infrastructure Partners had bought 44% stake in power generation and engineering services firm Asian Genco for $425 million. Other investors who participated in that deal in the Singapore-based holding company that owns many hydro, thermal and non-conventional power generation assets in India include Everstone Capital, General Atlantic, Goldman Sachs Investment Management and Norwest Venture Partners, among others.