OREANDA-NEWS. June 02, 2011. Tata Power, India's largest integrated private power utility, has launched an offering of perpetual debentures of Rs1,500 crore. The mandated joint lead arrangers for the issuance are Standard Chartered Bank and Yes Bank, reported the press-centre of Tata.

The unique features of the debentures are that they are perpetual in nature with no maturity or redemption and are callable only at the option of the company. The coupon (which may be deferred at the company’s option) on the debentures is set at 11.4 per cent per annum, with a step up provision if the debentures aren’t called after 10 years. These debentures rank senior only to share capital of the company. This provides equity characteristics to these ‘hybrid’ debentures. This instrument is rated 'AA/Positive' by Crisil and 'CARE AA' by CARE.

Perpetual capital instruments are a form of debt with equity-like features and provide several benefits to issuers. They allow a better balancing of capital structure, enhance financial flexibility, expand the choice of instruments that can be issued to access debt markets and enable diversification in the investor base. For investors, such instruments offer a relatively higher return to compensate for the highly complex nature and subordinated position.

S Ramakrishnan, executive director, finance, Tata Power, said: “The issuance of these perpetual debentures is an important step in the overall financing strategy and capital structure management of Tata Power. As Tata Power continues to develop and execute its significant growth plans, this innovative long-term funding with equity features but without the associated economic dilution helps to diversify our financing options."

Both Crisil and ICRA who rate the company’s long-term debt have confirmed that they will attribute 50 per cent equity credit to the instrument.