Tata Power Offers Rights Issue At Rs 60

Tata Power, having operational capacity of 8560 megawatt, has come up with rights issue that will begin from March 20, 2014 and remain open for a minimum of 15 days. The issue size will be of Rs 1993.38 crore, primarily to fund its expansion and reduce debt equity proportion. The company's board, which met on March 8, 2014, approved the proposal.

The issue price will be Rs 60 and the eligible equity shareholders will be allowed 7 shares for each 50 shares they hold. All the fractional entitlements of eligible equity shareholders in the proposed rights issue shall be ignored for the computation of their right entitlement. However, such eligible equity shareholders whose fractional entitlements have been ignored shall be given preference in the allotment of one additional equity share each if they applied for the same. For example, if an equity shareholder holds 48 equity shares on the record date, the application form would record an entitlement of 6 equity shares and the shareholder would be given preference of an additional share if s/he applies for the same. As mentioned above, the size of the issue will be of Rs 1993.38 crore consisting of 33.22 crore shares with a face value of Re 1 each and at a premium of Rs 59 per share. 

The company had informed that it is selling its Arutmin coal mine in Indonesia for USD 500 million (Rs 3150 crore as on January 31, 2014). The money will be utilised for expansion plans and reduce its net debt to equity ratio from the fiscal year 2015. On consolidated basis, the total debt/equity ratio as on March 31, 2013 stood at 3.27x. Clubbing rights issue and the sale of the coal mine will raise funds of around Rs 5140 crore. With the help of this fund, the long-term debt/equity ratio will come down to 2.79x, provided the rights issue is fully exercised by all the investors and the full amount is used for repayment of debt. The amount may be used for expansion and repayment of debt in the following ways:

Of the total amount, if 80% is used for repayment of debt then the debt equity ratio will come down to 2.88x and if 60% is utilised then the debt equity ratio will be at 2.98x. 

No doubt the issue price is attractive for long-term investors. It will not have much impact on the share price of the stock. Currently the stock is trading at around Rs 80 and the issue is of Rs 60, which is at a discount of 33%. The funds raised by the company will impact the gross debt of the company and at the same time, there would be equity dilution of around 14% following the issue. This will impact the earning per share. The company on consolidated basis has incurred a loss of Rs 13.72 crore in the Q3FY14. The company has also got relaxation from the Central Electricity Regulatory Commission of around Rs 330 crore as compensatory tariff for its Mundra ultra mega power project to partly offset escalation in the price of the imported goods. Beside this, a compensatory tariff of 0.524 paise per kwh has been granted for the project from April 1, 2013 to March 31, 2014.