Tata Power has put its debt reduction plans in the fast lane and is set to launch an Infrastructure Investment Trust (InvIT) offering for its renewable energy portfolio by next quarter, CNBC-TV18 learns from sources.

An InvIT is similar to a mutual fund, which allows individual and institutional investors to invest in infrastructure projects and earn a small portion of the income as return.

Sources close to the discussions say that the company is expecting offers from prospective investors by this month and expects to finalise investors by next month.

"We are confident about closing the deal next months, so around August - September we should be on track to launch the InvIT," said a source on condition of anonymity.

Tata Power has a renewable energy portfolio with a capacity of 3 gigawatt (GW). As per the current plan, the company may seek to transfer the complete operational portfolio along with Rs 11000-12,000 crore of debt into the InvIT.

Sources say projects in the pipeline will be transferred into the InvIT platform once it is ready. The InvIT will also have the mandate to make acquisitions to fuel growth.

"While the valuation will be clear once the investors come in, we expect the portfolio to be valued at between $2-2.5 billion (approx Rs 14,000-21,000 crore). Add to that, the transfer of debt into the InvIT will lead to a significant deleveraging of the balance sheet;" said a banker close to the discussions.

Tata Power to close shipping biz sale next week

Another deal that is set to be closed soon is the sale of the company's shipping business.

"The deal has been finalised," said a source. "The company is expecting $200 million from the sale. (roughly Rs 1400-1500 crore)".

When contacted, the company declined to comment on the developments.

Tata Power's debt

Tata Power is sitting on a net debt of about Rs 48,000 crore currently. The company is looking to halve it by the end of the year and the launch of the InvIT will play a key role in the debt reduction. A note by HSBC global outlined the importance of the InvIT in the debt reduction plans of the company.

Excerpts from the report:

"We believe the biggest driver of stock performance will now be progress on debt reduction, which seems to be gradually falling into place. Its net debt/equity has fallen to less than 2 times from 3.18 times in the past 12 quarters.

The bulk of the debt reduction has been driven by sales of non- core assets as free cash flow generation is likely to be absorbed by capital expenditures for renewable projects. With the sale of Cennergi completed and funds received in a difficult market on 1 April 2020, we are now more confident on Tata Power’s intent to monetize assets."

HSBC expects the sale of the company's defence business told be completed this fiscal.

First Published:Jun 4, 2020 1:40 PM IST