Green Funding: BlackRock, Mubadala to invest in Tata Power Renewables

BlackRock, Mubadala to invest in Tata Power Renewables

Tata Power has signed a binding agreement with a consortium comprising BlackRock Real Assets and Mubadala Investment Company as co-investors to raise Rs 40 billion for its renewable energy platform. This investment will be by way of equity or compulsorily convertible instruments for a 10.53 per cent stake in Tata Power Renewables, translating to a base equity valuation of Rs 340 billion. The investment will be used to fund Tata Power Renewables’ growth plans in five distinct businesses focusing on consumer-oriented solutions. The platform will house all the renewable energy businesses of Tata Power including utility-scale solar, wind and hybrid generation assets; solar cell and module manufacturing; engineering, procurement and construction contracting; rooftop solar infrastructure; solar pumps and electric vehicle (EV) charging infrastructure. The deal reflects Tata Power’s pivotal position in the country’s clean energy transition as it seeks to reduce its dependence on fossil fuels.

Transaction contours

The proposal for raising Rs 40 billion through Tata Power Renewable Energy Limited (TPREL), a wholly owned subsidiary of Tata Power, was approved in a board meeting held in April 2022. TPREL will set up India’s most comprehensive renewable energy platform. Funds Rs 40 billion will be invested by a consortium led by BlackRock Real Assets with Mubadala as co-investor at an equity base valuation of Rs 340 billion subject to adjustments based on the EBITDA for financial year 2022-23. The investment will be made in two tranches of Rs 20 billion each.

Prior to the equity infusion, all businesses will be consolidated under TPREL through the transfer of special purpose vehicles and certain assets to TPREL. Consequently, TPREL will become the holding company for all the renewables businesses. The broad-based portfolio of assets ensures diversified yet stable revenue sources including 25-year fixed-price power purchase agreements (PPAs) for grid-connected utility-scale projects. All future renewable energy businesses will be developed under this holding company. The structure will optimise cash upstreaming, capital deployment, leverage management and fundraising.

The first tranche of Rs 20 billion equity will be infused post the transfer and approvals. The second tranche of Rs 20 billion through convertible securities will be infused within six months of the first infusion. The first round of investment is expected to be completed by June 2022 and the rest by the end of 2022. Approvals under the Competition Commission of India as well as PPAs are being sought prior to this infusion. Post the infusion of both tranches, the equity stake of BlackRock and Mubadala will be 9.76 per cent to 11.43 per cent, depending on the EBITDA for financial year 2022-23. Moelis & Company is the financial adviser to Tata Power for the deal, while JP Morgan is the financial adviser to BlackRock Real Assets. Cyril Amarchand Mangaldas & Co. are the legal advisers to Tata Power while Slaughter & May and AZB Partners are legal advisers to BlackRock Real Assets.

The way ahead

TPREL and its subsidiaries have an operational capacity of 3.3 GW as of March 31, 2022, and a pipeline of 1.6 GW, which is at various stages of implementation. The company has 1 GW of cell and module manufacturing capacity in Bengaluru, and has decided to set up another 4 GW of solar cell and module manufacturing capacity. The company has also installed the largest number of EV chargers (over 15,000) across the country, covering home and fleet customers as well as public charging stations. TPREL is targeting a portfolio of over 20 GW of renewables assets over the next five years, and a market leading position in the rooftop and EV charging space across India.

The setting up of the green platform and raising of funds to adequately capitalise on it would enable the platform to scale up rapidly to become a leader in the renewable energy segment, thereby providing a wide spectrum of products and services, and touching the bulk of the industrial, commercial and retail consumers. Further, the participation of globally reputed investors such as BlackRock and Mubadala will foster trust and confidence in Tata Power’s ability to deliver on its growth plans. Going ahead, the setting up of the platform and consolidation of all green businesses under it will accelerate the journey towards a cleaner and greener company.

Nikita Gupta