Lenders to Monnet Power reject JSW Energy’s acquisition offer

The lenders were not willing to take a haircut, which JSW Energy was insisting on for the acquisition, said a banker involved in the deal

JSW Energy’s consolidated net profit rose to Rs366.53 crore in the three months ended 30 June from Rs308.85 crore a year earlier. Photo: Reuters
JSW Energy’s consolidated net profit rose to Rs366.53 crore in the three months ended 30 June from Rs308.85 crore a year earlier. Photo: Reuters

Mumbai: Sajjan Jindal-led JSW Energy Ltd on Thursday said it has withdrawn its plan to acquire a majority stake in power producer Monnet Power Co. Ltd (MPCL) after the lenders to the latter rejected the offer.

JSW Energy, which has acquired three power plants from struggling peers in the last one year, had entered into an agreement with iron producer Monnet Ispat & Energy Ltd to acquire a majority stake in its subsidiary Monnet Power Co. in July 2015. The two companies had not disclosed a deal size.

“The lenders were not willing to take a haircut, which JSW Energy was insisting on for the deal,” said a banker involved in the deal, on condition of anonymity.

A number of analysts had raised concerns about the deal, given that Monnet Power’s projects have seen severe cost overruns due to a five-year delay. The company is setting up two coal-fired thermal power plants with a capacity of 1,050 megawatt (MW) located at Malibrahmani in Angul, Orissa and has a total estimated debt in excess of Rs.5,000 crore. JSW Energy and Monnet Power were engaged in long-drawn negotiations to work out a package that would have seen the latter’s lenders taking a haircut on the deal. Last year, the lending consortium to Monnet Ispat Energy had decided to invoke powers under the strategic debt restructuring (SDR) norms of the Reserve Bank of India (RBI) to convert part of the company’s debt into majority equity.

“The existing promoters (of Monnet Power) will have to take the haircut as well as the existing lenders. So, that new package is being discussed right now,” Jindal had told Mint on 23 July 2015 in response to concerns around the deal.

JSW Energy said on Thursday it had submitted a proposal to Monnet Power’s parent Monnet Ispat for acquisition of majority shareholding in the power subsidiary, but the same “was not accepted by the lenders to MPCL.”

A spokesperson of Monnet Power was not available for a comment.

“JSW Energy has recently added 1500 MW of capacity through the JSPL and Bina buyouts and it is unlikely they would want to commit more money immediately for more acquisitions. If they buy more now, the leverage will increase,” said Anubhav Gupta, analyst at Maybank Kim Eng Securities India.

JSW Energy has been on an acquisition spree since late 2014 when it first signed an agreement with Jaiprakash Power Ventures Ltd to buy its two hydropower assets of 1,391 MW. The sale of these two assets, however, was completed in September at about Rs.9,200 crore, which was lower than the previously announced value of Rs.9,700 crore.

In May, JSW Energy agreed to buy a 1,000 MW thermal power plant in Chhattisgarh from Jindal Steel and Power Ltd (JSPL) at an enterprise value of Rs.4,000 crore, which could be increased to Rs.6,500 crore if JSPL managed to secure 100% fuel supply for the plant and entered into long-term power purchase agreements. On Monday, Jaiprakash Power agreed to sell its 500 MW Bina thermal power plant to JSW Energy for an enterprise value of about Rs.2,700 crore—a 23% discount to the project’s total cost.

The three deals have taken JSW Energy’s total generation capacity to 6,031 MW from 4,531 MW earlier. The company has a target of reaching 10,000 MW in power capacity over the next few years.

“We believe that the benefits of the two recent acquisitions will be back-ended being leverage buyouts and meaningful earnings accretion will be from FY19 onwards. We have not included the financials of Bina in our estimates as we await further details on the deal,” Antique Stock Broking analyst Rahul Modi wrote in a 20 July note to clients.

Calling off the deal with Monnet will be a positive for JSW Energy in some sense, according to analysts. Acquisition of Monnet Power, if it fructifies, could stretch the balance sheet of JSW Energy, raising debt to equity (D/E) from 1.77x now to 2.5x, JM Financial Institutional Securities Ltd had said in a 19 July note.

JSW Energy on Thursday reported an 18.7% rise in first quarter net profit that fell short of the Street’s expectations, sending its shares down as much as 5.4% to Rs.79.05 in afternoon trading.

Consolidated net profit rose to Rs.366.53 crore in the three months ended 30 June from Rs.308.85 crore a year earlier. Consolidated net sales rose about 17.2% to Rs.2,411.24 crore from Rs.2,058.16 crore in the same period a year earlier.

A poll of 13 analysts by Bloomberg had expected JSW Energy to report a consolidated net profit of Rs.430.80 crore, while 15 analysts had expected net sales of Rs.3329.20 crore.

Total expenses in the quarter rose about 7.9% to Rs.1,572.53 crore from Rs.1,457.54 crore a year earlier.

Amritha Pillay contributed to this story.

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