Mumbai/New Delhi: JPMorgan Asset Management may invest around Rs.815 crore in the Bhaskar Group’s Diligent Power Pvt. Ltd, indicating renewed interest in India’s electricity sector.
“The investment, which is likely to be announced shortly, is for $150 million,” said a person aware of the plan. “The deal is in an advanced stage.” A Mumbai-based investment banker confirmed the development. Both declined to be named.
Mint couldn’t ascertain the size of the stake JPMorgan will acquire.
The investment banker for the deal is Avendus Capital.
A spokesperson for Diligent Power declined to comment. Avendus Capital said it does not respond to deal speculation. JPMorgan Asset Management neither confirmed nor denied the development.
Diligent Power is developing a project portfolio of 6,400 megawatts (MW), which includes a 1,200MW project in Chhattisgarh and another 1,320MW plant in Madhya Pradesh.
After high fuel costs and low capacity utilization increased financial stress for many power producers, there hasn’t been any private equity (PE) investment in firms that intend to generate electricity by using conventional fuel.
Diligent Power is in talks with various PE firms, including Actis, Khazanah Nasional Bhd, JPMorgan, Carlyle Group LP and IDFC Ltd, to raise money to finance its power projects, The Economic Times newspaper reported on 6 February.
Avendus Capital was the financial adviser to Diligent Power when it sold a stake to Warburg Pincus Llc in 2011. Diligent Power didn’t disclose the investment amount or the stake sold in a statement issued at that time.
Slowing economic growth, high borrowing costs and delays in securing regulatory approvals have hit many infrastructure projects in India, including power plants, hurting the ability of their promoters to repay creditors and vendors. Power project developers have been struggling with issues such as fuel shortages, delays in signing fuel supply agreements and long-term power purchase agreements.
DB Power Ltd, a unit of Diligent Power, was named in the Comptroller and Auditor General of India list of 57 companies over irregularities in the allotment of Durgapur II/Sariya coalfield in Chhattisgarh. An inter-ministerial group set up for reviewing coalfield allocations after an alleged scam had recommended forfeiture of bank guarantee for the Chhattisgarh field allotted to DB Power.
The fiscal year ended 31 March saw a three-year low in PE investments as a lack of exit options, subdued investment sentiment, slowing economic growth, challenges in fresh fund-raising and prolonged due diligence kept investors away.
However, some experts say a revival of the Indian power sector is around the corner, in the backdrop of 23 states and five Union territories increasing electricity tariffs in the last fiscal year and on efforts to bail out beleaguered state electricity distribution companies through a restructuring of their short-term loans.
“The revival in the Indian power sector will happen. In the next six months, more private equity play will happen. There is a progressive development after the Central Electricity Regulatory Commission’s order. Some value is back in the generation space,” said Sambitosh Mohapatra, an executive director at audit and consulting firm PwC India. “If the issues of developers such as Adani and Tata Power on fuel are sorted, more interest will be generated.”
The unprecedented move of India’s apex power sector regulator for a bailout package to Adani Power Ltd to offset losses on account of the unexpected increase in the prices of imported coal and the unavailability of domestic coal has set the stage for compensation for other power projects that have run into similar problems.
“We believe this order is a far-sighted order, which will aid in reviving the investor sentiment for one of the critical sectors of the economy,” SBICAP Securities Ltd said in a 3 April report.