Tata Power, India’s largest private power player, may secure US$300 million of cash by issuing shares with differential rights on its two coal special purpose vehicles (SPVs) namely Bhira Investments and Bhivpuri Investments.
In a press statement today, Bhira and Bhivpuri will issue the rights to Olympus Capital Holdings Asia.
Tata Power holds 30% interest in PT Kaltim Prima Coal (KPC) and PT Arutmin Indonesia coal mines in Indonesia respectively through these SPVs.
Taking current position of debt and cash in coal SPVs, the post money shareholding of Olympus Capital might be in the range of 14%-15% for an investment of US$300 million.
Considering the investment, valuation of 100% in two SPVs, representing 30% stakes in KPC and Arutmin, is around US$1.99 billion.
Using this as a benchmark, valuation of PT Bumi Resources Tbk (BUMI)’s 70% stakes in KPC and Arutmin is US$4.64 billion.
BUMI's today market capitalization today is Rp36.09 trillion or US$3.9 billion. By substracting with interest bearing debt of US$3.8 billion, BUMI's valuation is US$100 million.
Olympus Capital Holdings Asia is an independent middle market private equity firm set up in 1997 with offices in Hong Kong, New Delhi, New York, Seoul, Shanghai and Tokyo.
Olympus Capital’s investment portfolio in the country includes Orient Green Power of Shriram EPC and Quatrro BPO Solutions led by Raman Roy.
The instrumen is subject to certain regulatory and lender approvals. The instrument will be in the form of differential rights (class B) shares with no dividend rights, which are the subject of a capital protection arrangement at the end of 5 years from the date of closing the transaction, unless converted.
The class B shares are fully convertible into ordinary shares through the end of the 5th 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. These funds could also be utilised to secure further long term coal supplies by investing in coal mines or to reduce the outstanding debt in the SPVs.
"We are excited about this strategic partnership with Olympus Capital. We we hope to expand the partnership into other areas of common interest, given Olympus Capital's on-the-ground presence throughout Asia and expertise in the energy and power sector," said Tata Power Managing Director's Prasad Menon today.
This partnership is long term, flexible financing enhances ability to achieve our strategic goals of securing sustainable sources of supply for our rapidly growing power generation base.
“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.” S Ramakrishnan, executive director, finance, Tata Power said.
Daniel R Mintz, Founding Managing Director, Olympus Capital, said the company is very pleased to partner with Tata Power in their coal SPVs.
"We look forward to working with Tata Power to identify high quality projects to supply their growing resource requirements and also, given our experience in the power and energy sectors, to exploring additional opportunities to work together in other aspects of Tata Power’s business."
In June 2007, Tata Power had acquired 30% stakes in Indonesian coal mines, KPC and Arutmin for US$1,225 million.
It was funded through a bridge loan of US$950 million borrowed by Tata Power Cyprus which is now re-named Bhivpuri Investments, fully guaranteed by Tata Power.
The company had given US$273 million as shareholder loan to Tata Power Mauritius which is re-christened Bhira Investments with US$1 million equity in Bhivpuri and Bhira each.
The bridge loan was subsequently refinanced and the current outstanding debt is US$335 million as non-recourse and US$340 million as recourse debt.
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