Tata Power’s acquisition of Welspun was a clean deal, say analysts

Industry analysts believe Tata Power’s acquisition of Welspun Renewables Energy for ₹9,249 crore in 2016 was a reasonable deal helping the company diversify its portfolio with renewable assets.

While recent reports in the media suggested that Tata Sons was considering a forensic audit of the Welspund deal due to concerns over corporate governance and allegedly inflated valuations of the deal, sources in the company denied knowledge of any such developments.

“Tata Power participated in a process for acquisition of Welspun Renewable assets in a process run by Barclays from sell side. We were in competition with reputed Indian and international organisations. We have knowledge from the market sources that our price did not have much gap with others in the fray,” Tata Power said in a statement. “There are no governance and allied issues,” it added.

Industry sources suggest that since the Welspun deal was completed long ago and the consolidation has already happen, there is no question of reversing the deal. “There is a faction within the company or group that is not in the very supportive mode, that can be the only issue,” an analysts with a brokerage firm suggested.

According to market analyst with top brokerage house, the whole issue is being raised too late, the assets were already incorporated in Tata Power’s book. “We do not see that the acquisition has been overvalued, the main idea was to create a renewable asset portfolio, and monetise it later. The only concern was the large debt that the company already had. Probably, the idea that time was that once the company gets relief from the Mundra issue, they would be able to fund this deal,” analyst told BusinessLine .

Tata Power management has been stating recently that renewables is one of the key growth focus areas to bring non-fossil based capacities to 30-40 per cent of the total portfolio of the company, which means not only solar or wind by hydro power as well, and not only across India but internationally.

Tata Power management has been insisting it is keen on exiting non-core assets in order to improve the return on equity (ROE) and provide the necessary cash for reducing the company debt that stood at ₹48,000 crore post Welspun acquisition.

“There won’t be much sales of non-core assets, the only transaction that is really taking place, it seems, is selling 30 per cent stake in Arutmin mine in Indonesia to Bakrie Group,” an analyst tracking the company told BusinessLine .

“They have raised some low-cost debt on the Welspun assets, at 8 per cent level, that has been quite a positive move. So their strategy is to refinance, safe on the interest costs, and whenever possible”.

In the light of recent hi-profile exists from Tata Group companies, an industry source suggested that the new chairmen of Tata Sons N Chandrasekaran might be looking for some “fresh mind” for Tata Power as well.

Another analyst, however, notes that the current CEO of Tata Power Anil Sardana “did not have a big say” in cases like valuation of Welspun deal or Mundra plant compensatory tariff.

“I don’t think Sardana would have had a big say, he played his role for sure, but it would be minor in terms of changing the scope of the deal.”