Hindujas look to buy stake in German power company Steag

Hindujas look to buy stake in German power company Steag

Mumbai: The Hinduja Group has submitted a bid to acquire the fifth-largest power producer in Germany, said two people familar with the development who requested anonymity.

A successful acquisition will give the $23 billion London- headquartered group access to management capabilities and technology, which could be transferred to India, where the group is investing 45,000 crore to build 10,000MW of capacity.

“If Hindujas win the bid, they have a heavy power portfolio both in India and abroad in a few years," one of the two persons said.

Hinduja National Power Corp. Ltd is building a 1,040 MW coal-based power plant at Vishakhapatnam in Andhra Pradesh and is in the final stages of tying up finance from lenders.

The Hinduja Group is in the running to acquire Steag AG, the power generation and distribution arm of Evonik Industries AG.

A group of local German utilities are in the race for the business, valued at $4.1 billion, Bloomberg reported on 13 September, quoting Financial Times Deutschland.

The agency also reported that Hinduja Group has asked for more details from Steag.

The others in the race are Energeticky Prumyslovy Holding of the Czech Republic, German environmental services company Remondis AG and Turkey’s Park Holding, the agency added. The winner will be decided by November, 2010, the second person said.

Steag has 9,400MW of capacity, of which 7,700MW is in Germany. The rest is spread in power plants across Turkey, Colombia and the Philippines.

Evonik Industries “has decided to focus its group strategy and resources on its core chemical business," spokeswoman Barbara Muller said in an email reply on Thursday.

“We are therefore looking for one or more partners for its energy division Steag and we have several interesting bids, but we are sorry not to be able to comment on further details," she added. A Hinduja group spokesperson declined to comment on the development.

The Hinduja Group is being advised by BNP Paribas while JPMorgan Chase & Co is the investment banker to Evonik Industries, the second person familiar with the development said. The enterprise value of Steag AG is estimated to be anywhere between €3.8-4 billion, he added.

Power tariffs in the developed countries are much lower than Indian merchant power rates because of low growth and recession in the West, so the German company may not be able to command the sort of valuations that are seen in India, said Pramod Guppi, director sales at investment bank Execution Noble Ltd.

“Steag’s operations in emerging markets like Columbia, Philippines and Turkey could be an advantage," he added.There are no great synergies for Indian companies to purchase overseas power companies since power is a localised business and cash flows depends on the demand and supply in each country, said Samir Palod, partner at 3i Infrastructure Fund. The main drivers for overseas acquisition of power companies are availability of cheap finance and cheaper assets with better cash flows, he added.