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JSW Energy Ltd, part of the $11-billion Mumbai-based Sajjan Jindal Group, is set to acquire Lanco Infratech's 1,200 mw Udupi Power in coastal Karnataka for about Rs 5,700 crore, inclusive of Rs 4,500 crore debt and equity value of Rs 1,200 crore, two persons familiar with the development told ET. This would be the first acquisition of such magnitude in the thermal power space in which a domestic firm is acquiring another fully commissioned power project.
So far, the two deals that were announced in the recent past were either smaller in size or at the implementation level, while the acquirers in both instances were foreign firms. On April 23, ET was the first to report that JSW Energy and Malaysian company 1 Malaysia Development Bhd had emerged the front-runners to acquire Lanco's coal-fired Udupi plant.
Subsequently, on June 25, ET reported that JSW Energy was keen to acquire the power plant, even though the project was shut down amid a payment dispute between the operator and the state government.
Debt-laden Lanco disposing assets
The deal marks the continuing revival of interest in India's power sector after several years, during which projects got stuck in limbo due to lack of fuel supplies and pending clearances, among other reasons. The outlook has improved with the election of the Narendra Modi government, which has pledged to get badly needed infrastructure projects moving again as part of its economic revival agenda.
In December, French energy company GDF Suez SA acquired a 74% stake in the 1,000 mw thermal power project owned by Meenakshi Energy and Infrastructure Holdings in Andhra Pradesh. Of this, only 300 mw is operational while 700 mw is under implementation. It was reported that the French company paid Rs 650 crore for majority stake. In February, Singaporebased Sembcorp Industries picked up a 45% stake in NCC Power Projects, which is currently building a 1,320 mw coal-fired power plant in Andhra Pradesh, for Rs 848 crore.
If the deal with JSW goes through at the valuation cited, Lanco will take a hit of about Rs 400 crore on its investment as it had contributed Rs 1,600 crore toward equity in Udupi Power, which is a wholly owned subsidiary of Lanco Infratech. Udupi Power is an imported coal-based thermal power project in the Karnataka district of the same name.
Cash-strapped Lanco Group has been looking to dispose of assets for quite some time as it seeks to slash debt of a little over Rs 36,000 crore. Last December, in what came as a major relief for Lanco, a consortium of lenders led by IDBI Bank restructured Rs 7,700 crore of loans and released Rs 3,500 crore toward working capital to allow it to resume engineering operations. The transaction with JSW Energy would help the company, owned by L Madhusudan Rao, pare debt to about Rs 30,000 crore. In response to ET's queries, a Lanco Infratech spokesperson said: "No comment."
A JSW Energy spokesperson said: "The company continues to evaluate various opportunities to secure raw material resource as also growth opportunities; however the company is not in any conclusive discussions for any particular project." The cash-rich JSW Group is also said to be in discussions with the Jaypee Group to acquire its power assets, reflecting market sentiment that consolidation will drive the beleaguered power sector in the country.
However, some experts feel that due to aggressive regulation in the power sector, it is difficult to predict a trend based on a small number of transactions. "The industry is still on a growth phase with both installed capacity and proportion of private sector capacity on the rise," said Kameshwar Rao, executive director, energy, utilities and mining with PricewaterhouseCoopers. "In comparison to greenfield development, the M&A activity is still smaller, involving in some cases buyers new to the domestic market, and so the industry structure is in fact getting more competitive and far from a consolidation."
As part of its commitment to the afore-cited corporate debt restructuring (CDR) package, which includes a two-year interest holiday, Lanco had to commit that it would proactively sell assets across its diverse portfolio of power, clean tech, overseas coal mines and highways, and improve cash flows. This February, Lanco sold its hydro power projects to clean energy specialist Greenko Energies Pvt Ltd for an estimated Rs 650 crore.
Lanco Infratech had also entered into negotiations with state-owned 1 Malaysia Development Bhd (1MDB), the second-largest independent power producer in the Southeast Asian country, for the sale of Udupi Power. However, JSW Energy outbid theMalaysian firm, the second person said. "Lanco had invested a little over Rs 6,100 crore to build the power plant. The proposed acquisition will be made at Rs 5,700 crore, which is at a marginal loss to the seller," said the person cited above.
The deal would further strengthen the JSW Group's presence in Karnataka, where it has a 10 million tonne steel plant in Vijayanagar and an 860 mw plant. This will be Sajjan Jindal's first major acquisition outside his core steel business. In 2010,JSW struck a deal with troubled steelmaker Ispat Industries for a Rs 12,000-crore buyout.
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