Tatas scrap $300m deal with Olympus

MUMBAI: Tata Power has scrapped a $300-million worth stake sale agreement in two of its overseas coal mining arms to Hong Kong-based private equity fund Olympus Capital. The power company indicated that the deal was called off because of the private equity firm’s inability to fulfil certain pre-conditions in the investment agreement.
Tata Power, through Cyprus-registered Bhivpuri Investments and Mauritius-registered Bhira Investments, holds 30% stake in two coal blocks-KPC and Arutmin-in Indonesia.
Six months ago, Tata Power entered into an agreement with Olympus where the power producer would sell 14-15 % stake each in Bhivpuri and Bhira to Olympus. “The investment was subject to completion of certain conditions precedent, as specified in the Investment Agreement. The conditions precedent as stated therein were not fulfilled by the Long Stop Date (last date as set out in the contract ),” said Tata Power in a regulatory filing, without getting into details of what these conditions were. Consequently , Tata Power exercised its rights under the investment agreement and terminated it on January 1.
In 2007, India’s largest private sector electricity generator , acquired interest in the two Indonesian coal blocks for $1.2 billion. The acquisition was funded through debt-a short-term loan of $950 million borrowed by Bhivpuri , which was guaranteed by Tata Power and a $273 shareholder loan given by Tata Power to Bhira. The short-term loan was later refinanced and the current outstanding debt is $335 million as non-recourse and $340 million as recourse debt.
According to the agreement inked in July last year, Tata Power was to issue shares of Bhivpuri and Bhira with differential rights to Olympus Capital, which has investments in Orient Green Power and Quatrro BPO. These shares won’t carry any dividend and voting rights but Olympus’ $300 million investment would be protected at the end of five years from the date of closing the transaction . At the end of five years, Olympus had the option to convert them into ordinary shares, giving the fund a 14-15 % stake each in Bhivpuri and Bhira.
On Monday, shares of Tata Power closed 4% up at Rs 1,370 on the BSE. Credit rating agency Standard & Poor’s said that higher cash flows are expected from Tata Power’s Indonesian coal arms if one goes by the extraordinary tax payments made by them for the previous years. The Indonesian mine produces 55-60 million tonnes of coal annually. Of this, 12-14 million tonne of coal is used to feed Tata Power’s 4,000 MW Mundra project.
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