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Early this month Tata Power, one of the oldest companies of the Tata Group, brought down its holding in Indonesian coal mine KPC to 25 per cent by selling a five per cent stake to raise about $250 million. This was followed by another group company, Indian Hotels, divesting its 100 per cent stake in Blue Sydney, a Taj Hotel, for $30 million.
"The option to partially sell KPC and its related power company has the potential to provide the company the flexibility to raise additional funds to meet the current challenges," said Anil Sardana, managing director of Tata Power, explaining how the company was facing under-recovery and cash flow issues due to its Mundra power project.
Regarding the sell-off at Indian Hotels, Raymond Bickson, managing director and chief executive officer of the company, said, "This decision is in line with our group strategy to focus on key markets for now that are critical to the group operations."
This summarises the tale of non-core asset sales across Tata Group firms that expanded aggressively in the last decade by stretching their balance sheets. Tata Power, Indian Hotels, Tata Steel and Tata Communications together have over Rs 45,000 crore of debt due for repayment in the next two-and-half years. And these repayments have come at a time when cash generation is not enough. In the current financial, Tata Steel has raised Rs 3,000-3,500 crore with sell-offs, including a 50 per cent stake in Dhamra Port, its New Zealand arm Tata Steel International (Australasia) and land in Mumbai's suburb Borivali. In the same period Tata Communications has announced it will sell South African arm Neotel, which will bring it $140 million as the equity value for the 67 per cent stake it has in the company.
"There is no point in holding those assets which become non-core with a change in situation," says Bhargav Buddhadev, analyst with domestic brokerage Ambit Capital, justifying Tata Power's sell-offs.
Tata Power's calculations for Mundra were based on plans to import coal from Indonesia when international prices were around $40 a tonne in 2006. It bought a 30 per cent equity stake in two major Indonesian thermal coal producers, KPC and PTA, in March 2007. But global coal prices surged past $100 a tonne in 2011 and the Indonesian government banned exports below the notified price from September 2011.
This was a challenge for Tata Power as its consolidated debt more than doubled in the last five years to Rs 33,621 crore while its free cash fow remained negative. The company has Rs 2,513 crore debt due for repayment in the current year followed by Rs 2,796 crore next year.
Similarly Tata Steel has Rs 3,709 crore due in 2014, followed by a staggering Rs 29,507 crore in 2015. But Tata Steel's balance sheet for 2012-13 says it had free cash flow of Rs 1,200 crore against Rs 8,313 crore in the year-ago period.
The company acquired Anglo-Dutch Corus for $12.1 billion (Rs 53,460 crore) in 2007, raising the company's consolidated net debt to Rs 49,392 crore by March 2008 from Rs 14,037 crore a year ago. Besides, it increased capacity at the century-old Jamshedpur plant to 10 million tonnes by 2012-13 from 4 million tonnes in 2006 and is building a 6 million tonne unit at Kalinganagar in Odisha for Rs 38,500 crore. Consequently, Tata Steel's consolidated net debt rose to Rs 59,788 crore in March.
"Debt is in some sense a necessary by-product of growth, it is an issue we need to be concerned about, but not be obsessed about," said T V Narendran, managing director of Tata Steel India and South East Asia.
