A borrower of sustainability linked loans can generally avail money up to 25 basis points, or 0.25 percentage point, cheaper than normal loans.
If Tata Power does not invest or build capacity in areas like thermal power generation in the next few years, it will be rewarded by a reduction in interest rates by up to eight basis points, people cited above said.
It also needs to increase renewable power generation by about 1.5-2 gigawatt every year to avail additional cost incentive.
Achieving both the key performance indicators will allow the company to raise more such loans in future, they said.
Tata Power confirmed the matter.
“The company will use the proceeds to refinance and expand in power generation plants,” a Tata Power spokesperson said in response to ET’s query. “The company’s subsidiaries will use the proceeds for refinancing their existing loans. It will not be used for new capacity addition.”
Tata Power is raising the debt via two international subsidiaries. One is a club loan where Bank of America is lending along with Sumitomo Mitsui Banking Corporation (SMBC). The former is also extending a term loan facility.
Both the loans are in dollar denomination with a tenor of about three years. They will be priced after adding 125-150 basis points over the Secured Overnight Financing Rate (SOFR), a global rate gauge, people cited above said.
A natural hedge is available for the loan as the proceeds may be used offshore only by Tata Power
“Sustainability-linked loans are gaining ground in India wherein a borrower can save up to 25 bps compared to regular loans,” said Sanjay Agarwal, head, India corporates at Bank of America.
“If the borrower meets certain conditions around sustainability – for example, reduction in carbon emissions, water consumption, waste disposal, etc. – the savings are even higher,” he said.
UPL Corporation, international arm of agrochemicals company
made its debut in the sustainability-linked loan market with a $228-million fundraise.
Bank of America and Citibank have reportedly set a target of $1 trillion each in sustainable finance deployment by 2030 while JPMorgan Chase aims to finance and facilitate more than $2.5 trillion over 10 years through the end of 2030.
On March 31, Tata Power, together with its subsidiaries and jointly controlled entities, had an installed/managed capacity of 13,515 MW based on various fuel sources – thermal (coal, oil, gas), hydroelectric power, renewable energy (wind and solar PV), and waste heat recovery.
The company (including its subsidiaries) has 34% of its capacity (in MW terms) in clean and green generation sources (hydro, wind, solar and waste heat recovery), according to the company’s business responsibility and sustainability report.