Home > companies > news > Taqa to buy two Jaypee Group hydro-power plants

Abu Dhabi: A consortium led by Abu Dhabi National Energy Co. PJSC has agreed to buy two operational hydro-power plants from the debt-laden Jaypee Group by investing 10,320 crore, the latest instance of a local firm selling assets to cope with an economic slowdown.

The Abu Dhabi firm, also known as Taqa, will buy a 51% stake in Karcham Wangtoo (1,000 megawatts, MW) and Baspa II (300MW) hydroelectric power plants in Himachal Pradesh. Canada’s Public Sector Pension Investment Board will purchase a 39% stake, with IDFC Alternatives Ltd, the private equity arm of infrastructure finance company IDFC Ltd, buying the remaining 10%.

The funds raised from the sale will enable the Jaypee Group to repay some of its 50,000 crore debt, according to Mint research. The transaction will also help hasten consolidation in India’s beleaguered power sector, burdened by debt, delays in project approvals and fuel shortages.

Slowing economic growth has hit power demand from industrial consumers in some parts of the country. The economy grew less than 5% for the seventh consecutive quarter in the three months ended 31 December as manufacturing output contracted.

“Taqa is pleased to add these two high-quality hydro-power assets to our growing India business and to support India’s economic growth," Frank Perez, chief executive officer and head of global power and water at TAQA, said in a statement on Sunday.

“The equity invested by the consortium in the acquisition of the two hydroelectric plants will amount to approximately 3,820 crore ($616 million), of which 51% is from Taqa," the firm said in a statement. “The consortium will also acquire the assets’ non-recourse project debt." The debt component amounts to some 6,500 crore, a person directly involved with the deal said, requesting anonymity.

The acquisition is expected to be completed in 2014 after regulatory approvals. The investment will be recognized at the second meeting of the United Arab Emirates-India high level joint task force, co-chaired by Sheikh Hamed bin Zayed Al Nahyan, chairman of Abu Dhabi Crown Prince Court, and India’s trade minister Anand Sharma, which is scheduled to be held in Mumbai on Monday.

A Jaypee Group spokesperson did not respond on Sunday to phone messages and emails.

The Jaypee Group is close to selling two of its hydroelectric projects to a group led by Taqa, Mint reported on 24 December, citing two unnamed persons. Consulting firm EY, earlier known as Ernst and Young, was the adviser to the Jaypee Group, while Vaish Associates and Bansi S. Mehta were the legal advisers, said the unnamed person cited earlier.

Taqa, which means energy in Arabic, is no stranger to India. Apart from holding a majority stake in Nagarjuna Construction Co. Ltd’s Himachal Pradesh power plant, the company also operates a 250MW lignite-based power plant in the Neyveli region of Tamil Nadu and wants to scale it up to 500MW. The latest acquisition will make Taqa the largest private operator of hydro-power plants in India, its statement said.

“The biggest challenge with the large hydro-power projects is the execution. Once completed, these projects have stable cash flows with relatively lesser risk and hence are ideal for investment from sovereign, pension and large infrastructure-focused funds," said Sandeep Upadhyay, senior vice-president, infrastructure solutions group, at Centrum Capital Ltd, a brokerage. “I see deal activity picking up on similar acquisition deals for operating power assets in the near future."

The Canadian pension fund, the country’s largest, had $76.1 billion of assets under management on 31 March 2013.

India needs 15,000-20,000MW of fresh capacity every year to sustain economic growth, EY said in a 18 December report. To achieve it, $230 billion in investments is needed in the power sector in the next five years.

The Jaypee Group management has said that group company Jaiprakash Associates Ltd will try reduce its consolidated debt by 15,000 crore by selling its cement business, thermal and hydroelectric power plants and land, Viral Shah, an analyst at domestic brokerage Angel Broking Ltd, said in a 12 February report.

“Going forward, we believe deleveraging the balance sheet through monetization of assets would help reduce the huge debt, which continues to remain an overhang on the stock," Shah wrote.

On Friday, shares of Jaiprakash Power Ventures Ltd, which operates the two power plants, jumped 12.26% to 16.57 on BSE, while the benchmark Sensex gained 0.63% to 21,120.12 points. Shares of Jaiprakash Associates Ltd rose 3.46% to 41.90.

There are some signs of consolidation in India’s power sector.

JPMorgan Asset Management invested $150 million in the Bhaskar Group’s Diligent Power Pvt. Ltd (a 2,520MW power portfolio) in May last year. French energy company GDF Suez SA will acquire a 74% stake in a 1,000MW coal-fired power project owned by Meenakshi Energy and Infrastructure Holdings Pvt. Ltd in Andhra Pradesh.

In the past two years, Asian firms such as Korean Western Power Co. Ltd and Korea South-East Power Co. Ltd have also invested in the power sector. The former took a 40% stake in Pioneer Gas Power Ltd, which has a power generation capacity of 388MW, in March 2012, and the latter acquired a 600MW thermal-based power plant in February last year, according to an EY report.

Investment in hydro power is welcome, as it is capital intensive and not easy to finance locally in the current conditions, said Kameswara Rao, head of energy, utility and mining practice at consulting and audit firm PwC.

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