Home >Industry >Energy >JSW Energy to bail out JSPL by acquiring Chhattisgarh power plant

Mumbai: Sajjan Jindal-led JSW Energy Ltd is stepping in to bail out his younger brother Naveen Jindal’s debt-laden Jindal Steel and Power Ltd (JSPL) by acquiring a 1,000 megawatt (MW) power plant in Chhattisgarh.

The deal was formalized on Wednesday at a JSW Energy Ltd board meeting; the company is set to announce the contours of the deal at a press conference on Thursday, according to two people familiar with the development.

Mint could not immediately ascertain the value of the deal.

The sale of the 1,000 MW power plant in Chhattisgarh, owned by JSPL unit Jindal Power Ltd, will help the former meet interest payment obligations and pare overall debt.

Jindal Power has a total capacity of 3,400 MW.

As of September 2015, Jindal Steel and Power had a consolidated debt of 42,534.04 crore. It has an installed steel manufacturing capacity of 4.75 million tonnes per annum.

This is not the first instance of the cash-rich JSW Group, that also runs JSW Steel Ltd, stepping in to bail out a family member. In 2007, JSW Steel acquired 90% stake in a plate mill, a double jointing and coating, and a pipe mill in the US owned by Jindal Saw Ltd for an enterprise value of $900 million.

Jindal Saw, controlled by Sajjan Jindal’s elder brother Prithviraj Jindal, owned 49% stake in the plate mill, 19.4% in the pipe mill, and 100% in the jointing and coating mill.

To be sure, helping out each other during a crisis is part of the family agreement set out by the late O.P. Jindal.

The O.P Jindal Group was initially reorganized between his four sons after his death in a helicopter crash in 2005.

The brothers—Prithviraj, Sajjan, Ratan and Naveen—took over the management responsibilities of various businesses.

Sajjan Jindal took control of JSW Steel Ltd and JSW Energy Ltd, Prithviraj took charge of Jindal Saw Ltd, Ratan took the reins at Jindal Stainless and Naveen took charge of Jindal Steel and Power Ltd.

Last year, the Jindal brothers had envisaged creation of a fund to tap whenever there is a financial crisis in companies owned by them. At the same time, the brothers also initiated a process to try and simplify the cross-holdings between different firms promoted by the Jindal family.

The four brothers had jointly mandated global consultancy EY to create a transparent and tax-friendly structure.

Referring to the Chhattigarh power plant deal, Kunal Bhakta, an independent consultant said Sajjan Jindal has done this deal to accommodate Naveen Jindal.

“It may not be a bad deal for Sajjan Jindal in the long run, but, in the short run, it’s not the best deal for him to do. As for JSPL selling to others, they would not have got such high valuations from other suitors; other offers would have been at least 15% lower," Bhakta added.

Bhakta added that it was more of a positive for JSPL than it was for JSW as the plant was old and the transaction would not immediately be earnings-accretive for JSW.

“JSPL’s credit rating should improve as a result of this deal and so should the stock valuation. However, this deal will come with some riders so the equity upside may play out over the next few months, after a knee-jerk reaction upwards to 83-84 odd levels," he said.

Bhakta’s reference on valuations was based on media reports.

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