Tata Power has terminated its 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 deal would have marked one of the biggest PE funding deal involving Tata Group and the money was likely to be used to part retire debt on the books of the entities.
“The investment was subject to completion of certain conditions precedent, as specified in the Investment Agreement. The conditions precedent as stated therein were not fulfilled by the Long Stop Date,” disclosed Tata Power. As a result, it exercised rights under the investment agreement and terminated it on January 1, 2011. Olympus Capital declined to comment.
Tata Power holds its interest in the KPC and Arutmin coal mines in Indonesia through these SPVs. In June 2007, India’s largest integrated private sector power utility firm had acquired 30% stake in Indonesian coal mines, KPC and Arutmin for $1.225 billion.
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 was to issue shares with differential rights in Bhira Investments Limited and Bhivpuri Investments Limited to Olympus Capital Holdings Asia. 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, Tata Power has said in July 2010.
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.
After initiating the transaction, Olympus Capital hired Macquarie Capital to advice on the transaction and Barclays Capital to provide financing and act as financing structuring advisor.
Middle-market PE 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 that was to invest 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.