JSW Energy signs deal to buy Jaypee’s hydro power assets

Sajjan Jindal-led JSW Energy has signed a deal to buy all hydro power assets of Jaiprakash Power Ventures Ltd (JPVL). It is the third suitor to sign an agreement to buy the assets in one of the biggest infrastructure M&A deals in the country to date.

Previously Reliance Power and a separate consortium led by UAE's Taqa and including IDFC Alternatives have seen their proposed deals come unstuck.

JSW signed the deal a day after Reliance Power called off its proposed mega deal to buy all three operational hydro power assets of JPVL, a subsidiary of Indian infrastructure conglomerate Jaiprakash Associates Ltd (JAL).

Reliance Power said on Wednesday that it has terminated the discussions with JPVL due to regulatory uncertainties and tariff issues which impact valuations.

JPVL contradicted this and said the deal was called off for reasons not attributable to any regulatory uncertainties but due to differences over commercial aspects.

The development comes less than two months after Reliance Power signed an agreement to buy the assets in one of the largest deals in the infrastructure sector, which would have made it the top private hydro power player in the country.

JSW Energy has an existing operational capacity of 3,140 MW and has projects worth 8,630 MW under implementation and development phase identified in several states. The bulk of these is in thermal power projects. Its sole hydro project is in Himachal Pradesh where the company is implementing a 240 MW (3 X 80 MW), run-of-the-river, hydroelectric power project on the upper reaches of river Ravi in the district of Chamba. It had won the project through a competitive bidding process in July, 2007.

If it seals the deal to buy the assets from JPVL it would become a strong player in the hydro power sector and also derisk its business model which is tied to coal supplies.

The announcement came after market hours on Thursday.

JSW Energy scrip lost 6.1 per cent to close at Rs 72.3 a share while JPVL scrip saw its share price crumble 18 per cent on the BSE on Thursday in a weak market. In early morning trades on Friday, JSW Energy was down over 5.8 per cent while JPVL scrip rose 8.94 per cent in a flat Mumbai market.

State-run NHPC has operational capacity of around 6,000 MW of hydro power capacity and is the largest player in its segment by far.

JSW Energy has not disclosed the deal value but previously Reliance Power had said it would lead to transfer of assets worth over Rs 10,000 crore. Separate media reports citing sources had previously pegged it around $2 billion. Earlier another consortium of investors was to buy two of the three power assets for an enterprise value of around $1.6 billion.

Jaypee Group had said the money garnered through the deal would be used to repay debt of JAL.

The assets to be acquired include three plants-Baspa Stage II and Karcham Wangtoo in northern Himachal Pradesh which have combined capacity of 1,391 MW. The third plant Vishnuprayag with 400 MW capacity is located at Chamoli district of Uttarakhand. This facility was hit by floods last year.

These three assets have life of over 50 years and are run-of-the-river units which do not require large reservoir like a typical plant.

Reliance Power had moved swiftly after Abu Dhabi National Energy, which operates under the banner of Taqa, withdrew its offer to acquire two of the key assets of JPVL, on the pretext of changes in business strategy and priorities of Taqa.

In March JPVL had struck a deal to hive off two hydro-power plants as a part of its group asset-disposal plan to a consortium of investors, including Taqa, Canadian institutional investor Indo-Infra Inc and IDFC Alternatives.

It was to acquire JPVL’s assets in Himachal Pradesh which have combined capacity of 1,391 MW. The deal would have made Taqa the largest private operator of hydroelectric plants in India. It already has a small hydroelectric plant at Sorang, in which Taqa acquired a stake last year. Following the completion of the transaction, Taqa’s gross operational power generation capacity in India would have become 1,741 MW, comprising three hydroelectric facilities and a lignite power plant.

The deal for the two assets had an equity value of $616 million (Rs 3,820 crore), of which 51 per cent was to come from Taqa. Indo-Infra was to bring in 39 per cent of the equity commitment as its stake in the consortium with IDFC Alternatives holding the remaining 10 per cent in the special purpose vehicle (SPV) created for the acquisition. The Indian PE firm was to invest around $62 million in the deal.

JPVL had said Taqa is liable to pay break fee based on the earlier acquisition agreement.

After this deal came unstuck, two large private power producers, including Adani Group, which runs 3i-backed Adani Power, and Reliance Power entered the fray. Both these firms are large thermal-based power producers. Reliance Power is said to have pipped Adani over valuation offered as also some terms of the proposed transaction. According to The Economic Times, Jai Anmol, son of Reliance Group chief Anil Ambani, and Karan Adani, son of Adani Group chief Gautam Adani, were directly involved in the negotiations for the deal.

(Edited by Joby Puthuparampil Johnson)

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