Anil Ambani-controlled Reliance Infrastructure Ltd has signed a non-binding term sheet with Canadian pension fund manager Public Sector Pension Investment Board (PSP Investments) to sell 49 per cent equity stake in its power business in Mumbai and adjoining areas for an undisclosed amount, it said on Monday.
The move takes the company a step further in becoming a predominantly defence products firm.
Reliance Infrastructure's integrated power generation, transmission and distribution business (known as Reliance Energy) in Mumbai distributes power to nearly three million residential, industrial and commercial consumers in the suburbs of Mumbai, catering to a peak demand of over 1,800 MW, with revenues of Rs 7,700 crore in 2014-15.
The company has decided to carve out the business on a going concern basis into a separate special purpose vehicle, in which Reliance Infrastructure will own the controlling 51 per cent stake and PSP Investments will own the remaining 49 per cent, it said in a statement.
The deal is, however, subject to due diligence, definitive documentation, applicable regulatory and other approvals and certain other conditions.
“The parties have entered into an exclusivity agreement valid till March 31, 2016...Accordingly, there can be no certainty that a transaction will result," it said.
Reliance Infra recently said it is looking to sell stake in its road projects and has shortlisted seven bidders for selling its cement business as the firm retunes its focus on its defence sector business.
Earlier this year, Reliance Infra had pipped several other business groups, including Munjals of Hero and Mahindras, to ink a deal with Nikhil Gandhi-promoted SKIL to buy management control of Pipavav Defence & Offshore Engineering Co. Ltd. The firm said on Monday it has received all clearances and will open the open offer to acquire shares from the public next month.
As per the agreement with the promoters of Pipavav Defence, Reliance will acquire from them approximately 18 per cent stake in the company for Rs 819 crore.
Meanwhile, this marks the first known direct India related investment for PSP Investments. As on March 31, 2015, PSP Investments had Canadian $112.0 billion of net assets under management and is among the top five pension fund managers in the North American country.
It follows its biggest peer Canada Pension Plan Investment Board (CPPIB) that has poured around $2 billion in India in the past five years. CPPIB opened its first India office in Mumbai last month as it looks to build on its existing exposure to the country.
CPPIB has invested in companies including Kotak Mahindra Bank and L&T Infrastructure Development Projects. It has also formed joint investment platforms with Piramal Enterprises and Shapoorji Pallonji Group, besides investing in third-party PE funds as a limited partner (LP). Its Indian LP portfolio includes investments in Multiples Alternate Asset Management and India Value Fund Advisors.