Jaypee power plants bidding: Adani seen ahead of JSW

MUMBAI: Two domestic majors, the Adani Group and JSW, have emerged as potential bidders for power plants owned by the Delhi-based Jaypee Group, with the former having its nose in front. Multiple sources aware of the discussions said both Gautam Adani and Sajjan Jindal, the promoters of Adani and JSW, respectively, have met the Jaypee Group’s top brass led by Manoj Gaur. Adani is believed to have offered to buy Jaypee’s hydel business in a bid to diversify his portfolio which currently consists almost entirely of thermal plants.
The people cited above said the Adani-Jaypee talks around the hydro projects seem to have progressed more. One of the sources mentioned above added that Adani may make an advance payment as early as Friday to signal his seriousness. An MoU may be signed with the Adani Group for the entire hydro business unit for an enterprise value of Rs11,500-12,000 crore. Adani Power already has 8,580 mw of operational capacity, all of it fired by coal and solar energy.

While the talks with the Indian business groups have been on for a while, they are likely to gather momentum after the Abu Dhabi National Energy Co (Taqa) on Thursday pulled out of a Rs10,500-crore ($1.6-billion) deal to buy two hydro power plants of Jaypee.

merger between the two groups’ power businesses — JSW Energy and Jaiprakash Power Ventures — to create a company with 5,340 mw of operational assets.

If successful, these dialogues could lead to the largest consolidation in India’s power sector, and, depending on how the chips fall, will catapult either the Adani Group or JSW into the position of India’s largest private sector power generator.

“Taqa’s exit has been sudden and unexpected. But in the past 8-10 weeks, several people have approached us for strategic discussions as India Inc is once again feeling upbeat about an economic turnaround. You will acknowledge that all our assets are best-in-class. We are working on a plan B, which we shall announce in the coming days. We are committed to these projects but at the same time we are firm on reducing our group debt from the current levels,” Manoj Gaur, executive chairman of the Jaypee Group, told ET.

Gaur added that he may be open to selling either the hydro or thermal business. “We are willing to engage for either thermal or hydro portfolio, but not for both. All our hydro assets are operating. So the focus will be to improve efficiencies and bring down the debt to Rs 45,000 crore this fiscal.” The group had a net debt of over Rs 60,000 crore as on March 31, 2014. Jaypee Power has Rs 29,000 crore of debt, largely on account of its new capacities in UP and Madhya Pradesh which are due to go onstream soon.

The discussions with JSW are still preliminary and therefore more fluid in nature. If a merger of the entire Jaypee power portfolio becomes unwieldy, then JSW may negotiate for three thermal units of Jaypee Power.

Simultaneously, JSW is also in final discussions to buy Lanco’s Udupi power plant. A detailed mail sent to the JSW Group spokesperson did not elicit any response. Top company executives ET reached out to on Thursday declined to respond to what they said were “rumours”. The Adani Group spokesperson was not available for comment.

JSW Energy has a capacity of 3,140 mw with aspirations to scale it up to close to 12,000 mw. Sources said the Sajjan Jindal-led company may find it easier to take over the thermal power projects of Jaiprakash Power as it will help the group add capacity by way of projects with secure fuel supplies. JSW Energy is strategically moving from a merchant power model, where power rates are set on a daily basis, to an electricity supplier that has long-term pacts. By acquiring projects like that of Jaiprakash’s, it will reduce exposure to the shortterm market.

Gaur, however, refused to comment on any specific discussions with either Adani or JSW Group. Power sector analysts say by selling the hydro assets, the Jaypee Group can reduce its net debt by Rs 12,200 crore. But selling the entire power portfolio can bring down the group’s debt by Rs 30,000-32,000 crore in one go.

DEAL CALLED OFF

Jaiprakash Power Ventures (JPVL) — Jaypee’s listed power arm — is currently the country’s largest private sector hydro power producer with 1,700 mw of operational capacity.

In March this year, Taqa signed a pact to acquire Jaypee’s 300 mw Baspa II and 1,000 mw Karcham Wangtoo projects, both on river Sutlej, for Rs 10,500 crore. The deal, which was hailed as the largest FDI in the power sector, came at a time the industry was going through its worst period. Taqa’s sudden pullout comes on the back of reports that the Himachal Pradesh government had raised several objections to the deal. There has also been speculation about Taqa not receiving security clearance.

The Jaypee Group, however, denied any state-level objections. In a filing with BSE, Jaiprakash Power said Taqa was citing a change in its business strategy, and the Abu Dhabi company is liable to pay a break-up fee as per the deal agreement. The JPVL stock reacted sharply following the news and ended the day down 7% at Rs 19.20 per share on BSE, its biggest drop since July 8. The shares have gained 1.3% this year.

“We were to hive off the assets through a court-approved demerger. Whatever commitments we have with the states regarding power purchase agreements and other matters would have got transferred without the slightest change,” Gaur told ET.

FDI up to 100% is allowed in the power sector. In fact, Taqa already has a presence in Himachal Pradesh where it holds a majority stake in a power plant of NCC Ltd. It also operates a 250 mw lignitebased power plant in Tamil Nadu’s Neyveli region and wants to scale it up to 500 mw.

Taqa is 72.5% owned by the Abu Dhabi government and its various agencies. It operates in 11 countries across four continents, including India. Taqa officials, when contacted, declined comment on the reasons for scrapping the deal. Other than these two hydro projects, Jaypee has a 400 mw project in Vishnuprayag, Uttaranchal, which resumed operations in April after being shut down in June last year following flash floods.

The total project cost of the three Jaypee hydro projects is Rs 10,500 crore, which includes Rs 3,100 crore of equity. Interestingly, Taqa had agreed on an enterprise valuation of Rs 10,500 crore, or 1.2 times the book value, for just two of the three projects. JPVL also has a 500 mw operational thermal power unit in Bina built at an estimated cost of Rs 3,200 croreand is adding two more coal-fired units.

(Additional inputs by Suraj Sowkar)