Home > companies > news > Taqa’s Jaypee deal is off, so why is no one sad?

Mumbai:

Infrastructure developer Jaypee Group will have to find new buyers for its hydropower plants—key to its attempt to reduce the debt on its books—after a consortium led by Abu Dhabi National Energy Co. PJSC, or Taqa, withdrew from an agreement to purchase two of its hydropower plants in Himachal Pradesh.

Still, Jaypee walks away with a breakaway fee and experts say the group could get a better deal for the two plants on account of improved investor sentiments, the result of a new, business-friendly government taking over in India in late May.

The Taqa deal was worth 9,689 crore.

On Thursday, Jaypee Group’s unit Jaiprakash Power Ventures Ltd told BSE that 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.

According to company executives, Taqa will pay $9 million breakaway fee (around 54 crore) to Jaiprakash Power and the entire deal stands cancelled.

A consortium led by Taqa, which means energy in Arabic, agreed to buy the 1,000 megawatt (MW) Karcham Wangtoo and 300MW Baspa II hydroelectric power plants from Jaypee in March in a deal that would have enabled the Indian infrastructure developer to repay some of its debt. The transaction was also seen as helping hasten consolidation in India’s power sector, burdened by debt, delays in project approvals and fuel shortages.

The other investors in the consortium included Canada’s Public Sector Pension Investment Board and IDFC Alternatives Ltd, the private equity arm of infrastructure finance company IDFC Ltd.

An email sent to Taqa seeking clarifications on the withdrawal did not elicit any response. Calls made to a Taqa spokesperson’s mobile phone went unanswered.

The sale of the two hydro projects was key to the Jaypee group’s efforts to pare its debt of around 60,000 crore. The developer wants to bring this number down to 35,000 crore by the end of this fiscal year, Manoj Gaur, executive chairman, Jaypee Group, said in a May interview.

Since September last year, Jaiprakash Associates had sold assets worth 15,000 crore.

In an evening statement, Jaypee Group said the withdrawal of Taqa India from its agreement with Jaiprakash Power for the sale of hydro-electric projects would not affect its resolve to reduce debt and unlock stakeholders value.

“It is unfortunate that the Abu Dhabi-based company Taqa has decided to undo its agreement with Jaiprakash Power to buy 1000MW Karcham Wangtoo and 300MW Baspa II projects due to a change in their business strategy and priorities," Gaur said in the statement.

“This will, however, not impact our Group’s commitment to reduce debt to 45,000 crore by March 2015. We have created valuable assets and we are confident to get investors to help us raise funds in the near future," Gaur added.

Still, this number is higher than the 35,000 crore target Gaur mentioned in May.

Experts say the Jaypee Group will get better valuations for its plants as market sentiments have improved following the victory of the Bharatiya Janata Party, perceived as business-friendly, in the general elections. For instance, Jaiprakash Associates Ltd, a unit of Jaypee Group, raised $250 million by selling shares to financial institutions and banks earlier this month.

Manish Aggarwal, partner and head of energy and natural resources sector at consultancy firm KPMG India, said: “I believe Taqa’s decision to withdraw from the deal to buy hydro power plants belonging to Jaypee Group has more to do with the company’s global investment strategy rather than perceived company specific or country specific risks".

Aggarwal pointed out that unlike assets in the thermal sector, where issues related to fuel linkages, land availability, and tariff fixation are a cause of concern for investors, the hydropower assets put on the block by Jaypee are functioning ones with strong operational parameters, and power offtake agreements in place.

“I think the group will find buyers sooner or later for these assets," Aggarwal added.

A senior analyst with domestic brokerage firm, who spoke on condition of anonymity, said, “Jaypee Group has a ‘Plan B’ in place. There is no need to press the panic button right now."

Last month, Mint reported that the deal between Jaypee Group and Taqa appeared to have run into a snag.

However, Jaypee Group maintained that the withdrawal was a “sudden and unexpected" development.

“In a sudden and unexpected development, we have been informed by Frank Perez, senior executive officer of Taqa, that they had some compelling reasons forcing them to review their investment strategy and they were opting out of the transaction. We recognise that Taqa has exercised the buyer’s prerogative to opt out of the deal, but as per the agreement, they will have to pay to Jaiprakash Power the break away fee," the group said in the statement.

The company said Taqa had signed the agreement after detailed due diligence and added that “yet, for some reasons known to them, they have decided to undo the agreement."

“We had undertaken divestment of these as part of our objective to reduce debt. Our focus and resolve to work towards that goal remains as steadfast as ever," the statement said.

Taqa is no stranger to India. It already has a presence in Himachal Pradesh where it holds a majority stake in NCC Ltd’s power plant in the state. It also operates a 250MW lignite-based power plant in the Neyveli region of Tamil Nadu that it wants to scale up to 500MW.

After the sale, Jaypee would have been left with only one hydroelectric plant, in Vishnuprayag, Uttarakhand.

The two plants are located on the banks of the river Satluj or its tributaries, which eventually flow into Pakistan. The Baspa project site is located on the river Baspa, a tributary of Satluj in Kinnaur district. The second project’s reach is between Karcham and Wangtoo villages and is envisaged as a run-of-the-river development on the Satluj.

“Hydro projects are the most capital intensive of all classes of power assets, and funds investing in them must have a very long investment horizon, which conventional energy companies find hard to match and there are always other competing demands on their resources, said Kameswara Rao, leader (energy, utilities and mining) at audit and consulting firm PricewaterhouseCoopers Pvt. Ltd.

pr.sanjai@livemint.com

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