BackJSW Energy in talks to buy three power assets
JSW Energy looking at deals with Monnet Power, Jaiprakash Power and Jindal Power, for total capacity of 2,591MW
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Mumbai: JSW Energy Ltd, India’s fourth largest private power producer, is in various stages of discussions to buy three power assets, according to two people directly involved in the discussions.
The three power producers are Monnet Power Co. Ltd., Jaiprakash Power Ventures Ltd and Jindal Power Ltd, a unit of Jindal Steel and Power Ltd, the people said on condition of anonymity.
The three deals together will add 2,591 megawatts (MW) of power generation capacity to JSW, making it the third largest private producer in India, dislodging Reliance Power Ltd (6,000MW) from the position. Currently, JSW has a total power generation capacity of 4,531MW. The top two private power producers are Adani Power Ltd (10,480 MW) and Tata Power Co. Ltd (9,130 MW).
“As of today, the strategy is very clear. If the distress assets which are available are good enough to yields returns in the longer term, they should go and buy those assets. At the same time, they want to ensure that their credit rating should not be impacted much," said Anubhav Gupta, an analyst at investment broking firm Maybank Kim Eng Securities India.
JSW signed a pact with Monnet Ispat and Energy Ltd on 9 July for the due diligence on a possible acquisition of its subsidiary Monnet Power Co. Ltd.
Soon after this, JSW also signed a binding pact with Jaiprakash Power Ventures to acquire its 500MW Bina thermal power plant in Madhya Pradesh.
According to the two people directly involved with the deal discussions cited earlier, talks on both these power assets are still under way. JSW is also in talks with Jindal Steel and Power to buy 1,000MW of power capacity in Chhattisgarh, the people said.
As “part of our growth strategy, the company looks to evaluate various opportunities, both organically and inorganically. However, as a company policy we would not like to comment on a speculative analysis since it would be premature to do so till any of the deals being evaluated gets fructified," said a JSW spokesperson.
The acquisition drive, however, is likely to put pressure on the debt-to-equity ratio of JSW Energy, say analysts. JSW is one of the 10 most indebted groups in India according to Credit Suisse’s House of Debt report dated October 2015.
Analysts remain sceptical about whether the company can pull off all three deals.
“The management itself has earlier said it does not have the appetite for a third deal. All three deals together will stretch the balance sheet, in fact they may need to dilute equity for executing any of the three deals," said an analyst with a domestic brokerage firm who did not want to be identified.
“If they acquire 2,500MW they would need equity infusion, if it is 1,500MW it is manageable. if they buy 2,500 MW their balance sheet will be stretched, today’s market does not allow them to raise equity," said Maybank Kim Eng’s Gupta.
To be sure, JSW’s acquisition of two hydro assets of 1,490MW from Jaiprakash Power Ventures in September 2015 has increased its debt and deteriorated its debt-to-equity ratio, a measure of a firm’s financial leverage.
“I believe the company will need to raise fresh equity to go ahead with any of the three deals it is in discussions. The concern is shareholders may not be very happy of such an equity-based fund raising," said a second analyst from a domestic brokerage firm who did not wish to be identified.
In the last 12 months, JSW Energy’s stock has fallen 44% to ₹ 66.70, as of Tuesday.
As on 31 March 2015, JSW Energy had a total debt of ₹ 8,210.57 crore, which rose to ₹ 14,635.10 crore by 30 September. The company’s debt-to-equity ratio in the same period rose from 1.09 to 1.76.
Both Gupta and the analyst from the local brokerage firm do not expect the company to execute all three deals.
The unidentified analyst said the company may just go for two of the three deals. “Jindal Power looks like a better deal to execute at the moment," he said.
JSW Energy is also likely to face an issue with each of these power plants. “Bina has a low fuel supply, Monnet is not operational and Jindal Power belongs to the group," said Gupta.
A spokesperson for Jindal Steel and Power said the firm is looking at various options to strengthen its balance sheet.
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