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n Event
Tata Power, in a notice to stock exchange, has indicated that the deal with Olympus Capital to sell Tata Power’s 15% stake in the coal mine holding companies for USD 300 mn has been terminated.
n Management’s response
In the statement the company has detailed the reason as “The investment was subject to completion of certain conditions precedent, as specified in the Investment Agreement. The condition precedent as stated therein were not fulfilled by the Long stop date”. When we tried to clarify the reasons further the management’s response was “We are bound by confidentiality agreement and hence will not be able to comment on the reasons for the termination apart from whatever we have mentioned in the statement issued to the stock exchanges”.
n Our analysis
We believe there could be more of regulatory, policy / approval related issues with respect to the deal which could have resulted in the deal being called off. While there could have been issues with respect to specific clauses wherein Olympus was not comfortable but these we believe would not have caused the deal to be called off. We consider, for Tata Power, the development to be neutral / positive from valuations perspective but negative from a fund raising / stake sale perspective.
n Conclusion
Based on our long term average price of USD 70/ton of coal for Bumi’s coal and restating Tata Power’s stake to 30% from 25.5% we revise our SOTP at INR 1,508 / share (from INR 1,461 earlier). We believe the stock could re-rated over the next 12-18 months due to the high international coal prices, upwards restatement of coal reserves, earnings growth due to ~5 GW of projects being commissioned, and greater clarity on the pipeline ~6GW as the management is expected to achieve financial closure for sizeable portion of the capacity.
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