Tata Sons Ltd is considering a $1 billion fund-raise to finance a fresh equity infusion into group companies, including Tata Motors Ltd and Tata Power Ltd, two people aware of the development said.
The board of the Tata group holding company discussed possible avenues for the fund-raise at its meeting on Friday, the people cited above said on condition of anonymity.
“The board discussed various fund-raise options available, and is likely to soon take a final decision in this regard,“ said the first of the two people, adding, “The funds will be raised in both rupee and dollar.”
Revenues of both Tata Motors and Tata Power were impacted as India and much of the world declared sweeping lockdowns following the coronavirus outbreak.
Tata Motors has struggled with weak sales in the past few months, posting a loss of ₹9,894 crore in the March quarter. In May, a report from brokerage firm CLSA said the company’s Indian business had no equity value left, pointing to rising net debt levels and covid-19 disrupting its deleveraging plans.
The report said there was little immediate hope of a recovery in its domestic passenger and commercial vehicle segments either. CLSA said Tata Motors’ luxury car unit Jaguar Land Rover (JLR) is the only driver of the firm’s valuation, as revenues from JLR have contributed to 79% of its consolidated sales, while domestic commercial vehicle revenue has fallen 32% from a year earlier.
Earlier this month, Tata Power informed the exchanges it would raise ₹2,600 crore from promoter Tata Sons through a rights issue to strengthen its balance sheet, which would raise the parent’s shareholding by 10%.
“Tata Power is working on a strategic turnaround plan to strengthen the fundamentals of the company through a mix of divestment and business restructuring that will deleverage the balance sheet and improve the capital structure of the company. These actions are expected to improve the fundamentals and lead to an improvement in long-term shareholder value,” it had said.
Tata Power recently completed the sale of three ships for $212.8 million, the second asset sale after the divestment of its stake in Cennergi in South Africa for around $110 million.
In a setback, however, earlier this month, Gujarat decided to revoke a previous state government order that allowed it to pass on additional coal procurement costs on the power tariff agreement at its Mundra plant. The decision set back years of negotiations between Tata Power and the five state governments who have agreed to purchase from it, in the backdrop of rising international coal prices making old power purchase agreements unviable.