Mumbai: Jaiprakash Power Ventures Ltd approved the sale of its Bina Thermal Power Plant to JSW Energy Ltd on Monday, the company said in a statement to BSE.
The sale to JSW Energy is to be executed through sale of shareholding in a special purpose acquisition entity called Bina Power Supply Ltd (BPSL).
The Jaiprakash Power board agreed on Monday to transfer the Bina Thermal power plant along with all of its assets, liabilities, contracts and deeds to BPSL.
“The consideration of sale of entire securities of BPSL (held or to be held by the company) to be received from JSW Energy is linked to a base enterprise value of as on 1 September 2015 of Rs.2,700 crore, subject to mutually agreed adjustments,” Jaiprakash Power said.
The enterprise value of Rs.2,700 crore is lower than the power plant’s estimated project cost of Rs.3,000-3500 crore, according to analysts.
“In the last six months (January-June) the growth in electricity demand has been more than 9% in comparison to same period last year,” said Debasish Mishra, a partner at Deloitte Touché Tohmatsu India LLP. “This may be the right time for players with stronger balance sheets to acquire generation assets from debt-ridden corporates at attractive valuation.”
On 8 September, JSW Energy signed a binding memorandum of understanding with Jaiprakash Power Ventures to buy its 500 megawatts (MW) Bina power plant.
This will help Jaiprakash Power, which had a debt of Rs.22,414.94 crore as on 31 March, to reduce interest outgo.
The transaction is expected to be completed by May subject to any mutually agreed extension.
For Sajjan Jindal-led JSW Energy, this would be its third acquisition in the power sector in the last one year. In September, JSW Energy completed the acquisition of Jaiprakash Power’s two hydro assets for Rs.9,200 crore. On 4 May, JSW Energy agreed to buy 1,000 MW power capacity from Jindal Power Ltd, a unit of Jindal Steel and Power Ltd, at an enterprise value of Rs.4,000 crore, which could be increased to Rs.6,500 crore if JSPL manages to secure 100% fuel supply for the plant and enters into long-term power purchase agreements.
JSW Energy said the transaction (Bina Thermal Power Plant) is value accretive to the shareholders of the company immediately.
“The acquisition demonstrates JSW Energy’s commitment to the power sector which is vital for sustained economic growth of the country,” Sajjan Jindal, chairman and managing director of the JSW Energy, said in a statement to BSE.
Cyril Amarchand Mangaldas was the legal advisers to the company and PricewaterhouseCoopers carried out financial, accounting and tax due diligence. SBI Capital Markets acted as financial advisers to the transaction.
Following this acquisition, the aggregate installed and operational power generation capacity of JSW Energy will increase to 6031 MW (including proposed acquisition of 1000 MW power plant from Jindal Steel and Power Ltd).
Debt-laden Jaypee group has been on an asset sale spree.
The group has so far focused on selling its best assets in the power and cement sectors in order to reduce debt. In March, Jaiprakash Associates agreed to sell its entire cement division of 21.2 million tonnes to Ultratech Cement Ltd, which will fetch the company an enterprise value of Rs.16,189 crore in a deal that was approved in July.
On 4 July, Mint reported that the bankers to Jaiprakash Associates invoked the strategic debt restructuring (SDR) provision which allows lenders to convert debt into equity and take control. Jaiprakash Associates holds a 60.69% stake in Jaiprakash Power. As of 31 March, Jaiprakash Associates had consolidated debt of Rs.58,250 crore.
On Monday, Jaiprakash Power reported a standalone net loss of Rs.196.16 crore in the June quarter against Rs.66.96 crore net profit a year ago, on rising costs and a slump power generation fell. The power producer said standalone net sales in the first quarter fell 37.8% to Rs.750.41 crore from Rs.1,207.40 crore a year earlier. Shares of Jaiprakash Power Ventures Ltd gained 2.88% to close at Rs.6.07 apiece on Monday on BSE, while the benchmark index Sensex lost 0.32% to close at 27,746.66 points.