Tata Power may divest part of its stake in Mundra UMPP

Tata Power Company, India’s largest private power utility, may be the first firm to divest part of its shareholding in an ultra mega power project (UMPP) to finance capacity additions of 5,660 Mw. The company is mulling the option of divesting equity — the amount is still undecided — in Coastal Gujarat Power, which is setting up the 4,000 Mw Mundra UMPP. It will also dilute equity in Maithon Power, a 74:26 joint venture with Damodar Valley Corporation.

Tata Power has sourced around Rs 15,750 crore as debt and requires another Rs 2,300 crore for equity by next year. For this, the company plans to divest stake in Mundra, Maithon and in Tata’s telecom companies. The company is looking at a number of options, but no firm decision has been agreed on.

Tata Power is executing five major thermal power projects, including the Mundra UMPP.The company announced financial closure of Mundra in April last year. The Rs 17,000 crore project is being financed through equity of Rs 4,250 crore, external commercial borrowings (ECB) of $1.8 billion (about Rs 7,200 crore) and rupee loans of up to Rs 5,550 crore.

The current market conditions are not conducive to finding the right valuation. However, the power sector, which is supported by strong demand, is less affected by the economic downturn. But the real challenge will be to find a right buyer who is willing to invest in these conditions.

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