Tata Power launches Rs 1,500-cr perpetual debenture issue

Our Bureau Updated - March 12, 2018 at 02:25 PM.

TataPower.eps

Tata Power has launched a perpetual debenture issue offering of Rs 1,500 crore to secure long-term funding.

The mandated joint lead arrangers for the issue are Standard Chartered Bank and YES Bank.

The debentures, perpetual in nature, come with no maturity or redemption and are callable only at the option of the company. The coupon (which may be deferred at the company's option) on the debentures is set at 11.4 per cent a year, with a step up provision if the debentures are not called after 10 years. The debentures rank senior only to the share capital of the company which provides equity characteristics to these ‘hybrid' debentures.

Tata Power said perpetual capital instruments are a form of debt with equity-like features and provide several benefits to issuers. They allow a better balancing of capital structure, enhance financial flexibility, expand the choice of instruments that can be issued to access debt markets and enable diversification in the investor base. For investors, such instruments offer a relatively higher return to compensate for the highly complex nature and subordinated position.

Mr S. Ramakrishnan, Executive Director-Finance, Tata Power, said: “The issuance of these perpetual debentures is an important step in the overall financing strategy and capital structure management of Tata Power. As Tata Power continues to develop and execute its significant growth plans, this innovative long-term funding with equity features but without the associated economic dilution helps diversify our financing options.”

In April, Tata Power's wholly owned subsidiary Bhira Investments successfully closed a 60-year non-callable for five years (Reg S) hybrid capital offering of $450 million at 8.5 per cent a year, payable semi-annually. The securities are guaranteed by the Tata Power.

RATING

CRISIL has assigned ‘AA/Positive' rating to the issue. It has accorded 50 per cent equity content to the instrument that combines features of both debt and equity. CRISIL also reaffirmed its ratings on the company's existing debt instruments and bank facilities at ‘AA/Positive/P1+'.

Mr Pawan Agrawal, Director, Crisil Ratings, said, “The rating of this instrument is based on an expectation that the embedded flexibility to defer distribution payments is unlikely to be used by the issuer.”

The perpetual instrument is rated at the same level as other traditional long-term bonds issued by Tata Power. “The 50 per cent equity-content treatment to this instrument emanates from the presence of a strong replacement capital covenant and the instrument's deeply subordinated position in the issuer's capital structure. For investors, such instruments offer a relatively higher return to compensate for the highly complex nature, a subordinated position and potential uncertainty over timing of maturity and risk of distribution deferral,” he said.

ICRA had reaffirmed LAA and A1+ ratings assigned for the Tata Power's non-convertible debenture (NCD) programme of Rs 2,600 crore and commercial paper/ short-term debt programme of Rs 500 crore. The long-term rating carries a positive outlook.

Published on June 1, 2011 17:43