Ahmedabad / New Delhi: KSK Energy Ventures Ltd, the Indian utility that plans to raise up to Rs883 crore in an initial public offering (IPO) that starts next week, has introduced a new and significant “risk factor” in its final offer document, which was filed with the Registrar of Companies late last week.
The risk factor involves the same project for which KSK is raising money through the share sale, an 1,800MW coal-based thermal power plant at Wardha Chhattisgarh being set up by a subsidiary, Wardha Power Co. Pvt. Ltd. It was expected that the Gujarat government-owned Gujarat Mineral Development Corp. Ltd (GMDC) would supply coal and pick up a 26% stake in Wardha Power in keeping with an agreement signed in late 2006 and subsequent amendments signed in April and August 2007.
But the change made in the final IPO filing says GMDC had informed the firm on 30 May that “the coal supply and investment agreement is subject to government approval and that the relevant documents have been submitted to the government for its approval”.
See details of the new risk factor on page 18 of the KSK filing (PDF)
Late Tuesday, Mint was not able to ascertain why GMDC wrote the 30 May letter and what, if any, steps need to be taken by the government before it formally approves the project.
However, three people familiar with the matter independently claimed that GMDC is reviewing the project. One of them, an official at GMDC who didn’t want to be identified said: “The state government will be reviewing the KSK Energy deal...after the exercise is over, a final decision regarding the continuation of the project will be taken.”
Executives at KSK Energy declined to comment on the record, despite repeated requests, saying they were in the so-called “quiet” period ahead of the share sale. Officials at GMDC and the Gujarat government couldn’t be reached for comment on Tuesday evening to elaborate on the 30 May letter.
And, earlier, GMDC had failed to confirm its equity participation in the project by the deadline of October 2007.
The project is dependant on coal from GMDC, which was allotted a coal block in Chhattisgarh by the government. If the approval doesn’t come through, Wardha Power will have to find an alternative supply of coal.
The draft filing for the KSK Energy share sale was made in February. The updated filing was not available on the website of stock market regulator Sebi or on the websites of any of KSK Energy’s investment bankers as of 9pm on Tuesday. The company is holding a press conference in Mumbai on Wednesday as part of its share sale efforts.
On Monday, KSK Energy said in an email statement that it raised Rs415 crore by selling shares to funds, including Macquarie Bank, before its IPO. The Hyderabad-based company sold 17.3 million shares at Rs240 apiece to six funds. The investors, apart from Macquarie, are GE Capital International, Singapore’s Tree Line Asia Master Fund Pte, the UK’s Universities Superannuation Scheme Ltd, Infrastructure Development Finance Co. Ltd (IDFC) and Axis Bank Ltd.
Lehman Brothers Holdings Inc. already owns 33.43% in KSK Energy through a unit. This will fall to 28.41% after the IPO, KSK Energy said in its prospectus. The company’s parent, KSK Power Ventur Plc. is listed on the London Stock Exchange’s AIM market.
The stakes sold to investors will account for 5% of KSK Energy’s post-IPO equity and value the company at close to $2 billion (Rs8,580 crore).
The company proposes to sell 34.6 million shares to the public in an issue that opens on 23 June and closes on 25 June at a price between Rs240 and Rs255 a share, banking sources said. KSK Energy, which produces 144MW of power at its three plants, plans to expand capacity to 8,993MW, according to its prospectus. That compares to the 28,664MW that NTPC Ltd, India’s biggest power generator, currently produces.
A slide in the Indian stock market this year has led to a fall in funds raised through IPOs. Excluding Reliance Power’s Rs11,700 crore offering in January, companies raised $763 million in initial share sales till May, down 54% over the same period last year, according to Thomson Reuters data.
Kotak Mahindra Capital Co., IDFC-SSKI, Morgan Stanley, Edelweiss Capital and Axis Bank are mandated to arrange the share sale.
(M.C. Govardhana Rangan of Bloomberg, Reuters and John Samuel Raja D. of Mint contributed to this story )