New Delhi: State-owned Power Grid Corp. of India Ltd (PGCIL) and the Aditya Birla Group are looking to independently acquire stakes in Portuguese power utilities.
While PGCIL plans to bid for 5-10% stake in Redes Energéticas Nacionais, SGPS, SA (REN), the Aditya Birla Group is seeking a 20% stake in Energias de Portugal SA (EDP). In both instances, the companies are seeking to buy out the holdings of the Portuguese government, which is seeking to exit the firms in the aftermath of the euro zone crisis.
REN, with a total market capitalization of around $5.88 billion (around Rs29,224 crore today), is in the business of electricity and natural gas transmission in Portugal; EDP, with a market value of €12 billion (around Rs81,720 crore today), is Portugal’s largest generation utility, with an installed capacity of 22,000 megawatts (MW).
An Energias de Portugal SA power station in Carregado, Portugal. Photo: Bloomberg
“In India, the market is regulated. We should get out of one geography. There is distress-selling (happening) in Europe. The Portuguese government has a 51% stake in REN and wants to exit as part of the bailout conditions imposed by the International Monetary Fund (IMF) and the EU (European Union),” said a top PGCIL executive who didn’t want to be identified.
Justifying the decision to exit, the Fiscal Strategy Document of the Portuguese government says, “The economic adjustment programme marks the beginning of the long process to solve the serious challenges facing Portugal. The programme, agreed with the EU and IMF, provides a loan of €78,000 million...the medium-term goal consists of a minimum 20% reduction in the number of enterprises in the main investments portfolios... through privatization, merger or winding up processes.”
“We have to indicate our interest by 24 October and the submission has to be made by 26 October. While the total government stake is valued at $3 billion, we are looking at acquiring between a 5% and 10% stake,” the PGCIL executive added.
PGCIL gets a guaranteed rate of return on equity of 15.5% in the Indian market. It registered a net profit of Rs2,697 crore on revenue of Rs9,100 crore in 2010-11. The transmission utility operates 86,000-circuit km of transmission lines, wheeling 50% of the power generated in India.
Mint had reported the Aditya Birla Group’s decision to re-enter the power sector on 30 January.
“Aditya Birla Group is ready to bid for a 20% stake in EDP. The company has given a letter to EDP stating that it is interested in acquiring the stake, and be considered. A meeting between the Indian firm and EDP executives has also taken place. With the market cap of the company being €12 billion, the 20% stake is valued at €2 billion,” said a person familiar with the development who did not want to be identified.
While questions emailed to the spokespersons of the Aditya Birla Group and the Portuguese finance ministry remained unanswered till going to the press, spokespersons for REN and EDP declined comment. The other company interested in acquiring a stake in EDP is Latin America’s Centrais Eletricas Brasileiras SA.
As a part of its diversification plans, PGCIL is firming up its strategy to enter the power generation business overseas. It is looking to enter the power transmission business in Bangladesh and Sri Lanka by setting up joint ventures with local partners.
The Aditya Birla Group had earlier sold two proposed 1,000MW projects and liquidated another one for which it had acquired land and obtained required environmental approvals.
In 2006, the group sold its 1,000MW Rosa Power Supply Co. Ltd in Uttar Pradesh to Reliance Energy Ltd, owned by Anil Ambani’s Reliance Group. The following year, it sold Bina Power Supply Co. Ltd in Madhya Pradesh to Jaiprakash Associates Ltd. The third power plant near Ennore in Chennai, which would have used imported liquified natural gas from Qatar, was wound up in 2006.
The Aditya Birla Group has a turnover of $30 billion with operations spread across 40 countries. It has plans to increase revenue to $65 billion in the next five years. The conglomerate has bought 22 companies in the past 15 years.