JSW Energy’s buyout plans for Bina power plant stuck

Lenders of Jaiprakash Power Ventures, which owns the Bina power plant, have invoked SDR norms to convert the company’s debt into majority equity


The deadline of JSW Energy’s acquisition of Jaiprakash Power Ventures’s Bina power plant is set for 31 May at an enterprise value of Rs2,700 crore.
The deadline of JSW Energy’s acquisition of Jaiprakash Power Ventures’s Bina power plant is set for 31 May at an enterprise value of Rs2,700 crore.

Mumbai: JSW Energy Ltd’s plan to buy the 500 mega-watt (MW) Bina thermal power plant from Jaiprakash Power Ventures Ltd may come unstuck as the latter’s lenders have invoked strategic debt restructuring (SDR), according to two people familiar with the discussions.

The deal, which has been under discussion since 2015 has made slow progress, the people said, requesting anonymity.

“The deal is unlikely to happen now due to SDR in Jaiprakash Power,” one of the two cited above said. The power producer, which is part of the debt-laden Jaypee Group, had said in July that its lenders have recommended SDR—the second group company after Jaiprakash Associates Ltd, where lenders recommended invoking SDR.

Under the SDR mechanism, banks can convert a part of the debt in a company to majority equity, taking over operational control.

Jaiprakash Power Ventures on Saturday alloted 305.8 crore equity shares to its lenders as part of debt restructuring scheme, which would reduce the debt of Rs3,058 crore.

Both JSW Energy and Jaiprakash Power Ventures did not respond to emailed queries and subsequent requests for comments since 14 February.

According to the agreement between the two companies, the deadline of the Bina plant’s acquisition is set for 31 May 2017 at an enterprise value of Rs2,700 crore.

On 8 September 2015, JSW Energy signed a binding memorandum of understanding (MoU) with Jaiprakash Power Ventures to buy the 500MW Bina plant. In July 2016, Jaiprakash Power formally approved the deal, which was to be executed through the sale of shareholding in a special purpose acquisition entity called Bina Power Supply Ltd.

JSW Energy had in September 2015 also completed acquisition of two hydropower projects—Baspa II and Karcham Wangtoo—from Jaiprakash Power for an asset value of Rs9,275 crore. This raised JSW Energy’s total capacity to 4,531MW. With the Bina buyout, the Sajjan Jindal-led power producer planned to take its overall capacity to more than 5,000MW.

The enterprise value of Rs2,700 crore is lower than the power plant’s estimated project cost of Rs3,000-3,500 crore, according to analysts. Brokerage JM Financial had at that time described the acquisition announcement as “a relatively low-risk asset acquired at a cheaper valuation.”

The plant has a power-purchase agreement (PPA) with Madhya Pradesh State Electricity Board (SEB) to supply 65% of its production capacity. The rest was to be sold in the open market.

“JSW (Energy) has not heard of any disagreement from the seller or bankers of Bina that could jeopardize the deal,” Edelweiss Securities had written in a 23 January report post JSW Energy’s third quarter results conference call with the management.

Over the last few years, power companies have found it difficult to secure fuel supplies and buyers for the power generated as debt-laden state electricity boards are unwilling to buy expensive power. Most power companies are weighed down by debt, forcing some of them to sell assets.

JSW Energy has emerged as one of the few buyers of stressed thermal power assets and has made no secret of its ambition to double its power capacity.

JSW Energy: The making of a powerhouse

Jaiprakash Associates owns 60.69% stake in Jaiprakash Power. JSW Energy had net debt of Rs12,300 crore as on 30 September 2016 while Jaiprakash Associates had a net debt of Rs20,359 crore. The entire Jaypee Group has debt exceeding Rs60,000 crore.

Jaypee Group has over the past two years been pushed by lenders to sell assets, transfer ownership of land parcels and even hand over the keys to the group’s headquarters in Noida to pare debt.

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