Indian power company Tata Power has reportedly called off talks with Malaysian oil and gas company Petroliam Nasional Berhad (Petronas) over an almost $2bn investment in its renewable energy business.

Insiders told the Economic Times that the company decided to end the discussions after both parties entered the final stages of negotiating a binding term sheet.

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A source said: “Both sides were focussed on finalising the binding agreement. It was at that point it was relayed that the board was hesitant to proceed any further, since it felt better valuations could be achieved through an initial public offering (IPO).”

Last year, Tata Power’s subsidiary, Tata Power Renewable Energy (TPREL), began talks to raise an investment of between $500m and $750m for its renewable energy platform through a proposed infrastructure investment trust (InvIT).

The company expected this move would decrease its net debt from around Rs360bn ($4.7bn) to Rs250bn ($3.3bn).

Petronas is said to have agreed to make an investment of Rs35bn ($466m) to Rs38bn ($500m) in the InvIT for acquiring a 30% to 35% stake at a $2.5bn enterprise value.

By ending talks with Petronas, Tata Power is reportedly planning an initial public offering of the renewable energy business.

For this, the company intends to create another business entity that will focus mainly on developing roof top solar projects and electric vehicle charging stations.

The timeline for establishing the entity has not yet been finalised.

This week, Tata Power commissioned India’s largest natural ester-filled 110/33/22kV, 125MVA power transformer in the Mumbai Transmission network at the BKC receiving station, with the aim of enhancing transformation capacity with a minimal environmental footprint.

In January, the company was contracted to build a 320MW ground-mounted solar photovoltaic project, expected to begin commercial operations next May.