Mumbai: Reliance Power Ltd (R-Power), controlled by Anil Ambani’s Reliance Group, has agreed to buy the hydropower assets of Jaiprakash Power Ventures Ltd for an undisclosed amount, just days after a consortium led by Abu Dhabi National Energy Co. PJSC, or Taqa, called off a 9,689 crore plan to buy two of Jaiprakash’s hydropower plants.

Reliance CleanGen Ltd (RCL), a unit of R-Power, and Jaiprakash Power, a subsidiary of Jaiprakash Associates Ltd, said on Sunday that they have signed an exclusive accord for the acquisition of the entire hydroelectric power portfolio of Jaiprakash Power.

Jaiprakash Power has an operational hydropower capacity of nearly 1,800 megawatts (MW), the largest outside government control in India, and an asset base of over 10,000 crore. The portfolio comprises three plants—Baspa Stage II (300MW) and Karcham Wangtoo (1,091MW) in Himachal Pradesh, and Vishnuprayag (400MW) in Uttarakhand.

“JAL (Jaiprakash Associates) intends to utilize the entire proceeds of the proposed transaction to reduce its outstanding debt, and thereby deleverage its consolidated balance sheet," R-Power said in a statement. “The completion of the proposed transaction would make Reliance Power the largest provider of hydroelectric power in the private sector in India."

R-Power has hydroelectric power projects aggregating over 5,000MW under development, of which 4,200MW is located in Arunachal Pradesh, 700MW in Himachal Pradesh and 400MW in Uttarakhand.

SBI Capital Markets Ltd is advising R-Power on the transaction.

R-Power did not say how it will fund the acquisition.

The Taqa consortium was looking at buying Baspa and Karcham Wangtoo.

The Taqa deal was worth 9,689 crore. On Thursday, the Jaypee Group’s unit Jaiprakash Power Ventures Ltd told BSE it had received a notice from Taqa India Power Ventures Pvt. Ltd “informing us that they will be withdrawing from the acquisition transactions as defined in the acquisition agreement dated 1 March 2014, entered into between Jaiprakash Power and others".

“They have also stated that they have been constrained to take the said decision as a result of a change in the business strategy and priorities of the group. We may add here that such withdrawal makes Taqa liable for payment of break fee in terms of the said acquisition agreement," Jaiprakash Power said.

Taqa will pay a $9 million breakaway fee (around 54 crore) to Jaiprakash Power and the deal stands cancelled, company officials said, requesting anonymity.

The sale of the hydropower projects was key to the Jaypee group’s efforts to pare debt of around 60,000 crore. On Thursday, Manoj Gaur, executive chairman, Jaypee Group, said his group will reduce debt to 45,000 crore by March 2015 as he was confident of getting investors to raise funds in the near future.

For R-Power, this acquisition will help in diversification.

The proposed acquisition would make R-Power one of the largest private power companies with 7,800MW operating capacity by the end of financial year 2015, a person close to the development said, requesting anonymity.

“Given that the entire hydroelectric capacity being acquired is operating, Reliance Power will achieve instant expansion in its generation capacity, revenue, Ebitda, PAT and ROE," he said.

Ebitda is earnings before interest, tax, depreciation and amoritization, while PAT is profit after tax. RoE stands for return on equity.

The acquisition would achieve diversification for R-Power’s largely coal-based portfolio, this person said.

R-Power has projects based on coal, gas, hydro and renewable energy, with an operating portfolio of 4,525MW.

Reliance Power, which has a debt of over 25,000 crore, is in the midst of getting its various projects operational. It has several projects at various stages of implementation and development.

A consultant, requesting anonymity, expressed his doubts about the R-Power’s capability to raise funds to buy the three hydropower assets of the Jaypee Group even though the bid seems to be a serious one.

The hydropower space is ideally poised for consolidation in India, said Sandeep Upadhyay, senior vice-president, infrastructure solutions group, Centrum Capital Ltd, a merchant banker.

Moreover, this potential deal intent would also send positive signals to the stakeholders in the power sector, which has been starving for investments over the last few years, he said.

“Given the large size of this potential transaction, if it were to conclude, I expect this would also lead to set indicative valuation benchmark in the hydropower sector which has lately seen a spurt in merger and acquisition activity from domestic as well as foreign investors," Upadhyay said.

He said that while the seller’s intent is clearly driven by the need to deleverage Jaypee’s balance sheet, the interest from R-Power to acquire large operating hydropower assets clearly signifies their intent to diversify their existing portfolio.

“The Reliance Power team has been going slow on the thermal power space due to issues related to policy framework and fuel supply and, hence, I believe they would be fairly aggressive to close out on this deal and demonstrate their serious commitment to their stakeholders," Upadhyay said.

Reliance Power had reported a 1.7% rise in profit to 244.3 crore in the quarter ended June from a year earlier. Net sales increased 56% to 1,753.07 crore in the three months ended 30 June.

Reliance Power has sued HT Media Ltd, publisher of Mint, in the Bombay high court over a 12 May 2010 front-page story in Mint that it disputed. HT Media is contesting the case.

Close