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Power producer JSW Energy Ltd expects to double its generation capacity to 6,000 megawatts (MW) on the back of two power projects of JP Power Ventures Ltd it agreed to buy last year and other acquisitions in the pipeline, said chief executive Sanjay Sagar.
In November, JSW agreed to buy two projects from Jaiprakash Associates’ subsidiary JP Power Ventures for about Rs.9,700 crore, which will raise its capacity from 3,140MW to 4,500MW. That transaction will be concluded in two weeks, Sagar said. “So, that is another 1,500MW (to acquire) after JP,” he added.
In July, the firm, part of the $11 billion JSW Group, signed a non-binding pact to buy a majority stake in two Monnet Ispat and Energy Ltd power plants, which add up to 1,050MW.
Sagar said the company has evaluated at least seven projects for acquisition in the last one year alone and is on the lookout for more assets. “At the moment, we may stop at around 6,000MW,” he said, declining to name the specific assets.
Sagar said JSW Energy will fund the JP transaction with Rs.2,000 crore of cash and internal accruals and take on Rs.6,500 crore of the project’s debt on its books.
The firm has shareholders’ approval to raise up to Rs.5,000 crore for ongoing capital expenditure and another Rs.7,500 crore to pursue “organic and inorganic growth opportunities”. This, however, is an option for future acquisitions, Sagar said.
JSW, controlled by billionaire Sajjan Jindal, is carrying out a technical and financial due diligence of the Monnet Ispat projects, Sagar said.
Monnet Ispat & Energy will relinquish a coal block won in an auction this year because changes proposed in electricity-tariff rules will render the project unviable, Bloomberg reported on 30 July. The company had won the blocks at a negative bid, or through reverse-bidding, and analysts have said the transaction with Monnet could be a negative one for JSW Energy. But Sagar said that, given the projects are located in India’s coal heartland, transportation costs are “practically zero”.
“Monnet, we are still looking at. We like the look of the project, but we will have to carry out due diligence and see what are the pitfalls... We just started studying the projects 15 days ago,” he said.
As of March 2015, JSW Energy had a consolidated debt of Rs.8,210.57 crore. As on 30 June net debt was at Rs.7,085 crore, the firm said. This compares with Adani Power Ltd’s consolidated debt of Rs.41,384.51 crore and Tata Power Ltd’s consolidated debt of Rs.37,204.94 crore as on 31 March.
“JSW Energy is the only balance sheet that can afford to (make acquisitions) compared to others in the industry,” Jindal said in July, emphasizing the firm’s rationale for looking at acquiring stressed assets.
“JSW’s deal with JP Power Ventures is an important one for the ailing sector as it could potentially trigger other mergers and acquisitions by renewing confidence of investors and large power companies, which are looking to acquire power assets from distressed companies,” said Anubhav Gupta, analyst, Maybank Kim Eng Securities.
“Funding is not a big hurdle for this transaction (the JP deal) since these are top-quality hydro-electric assets of the country. JSW can get 80% bank funding on these plants. It needs to arrange around 20% or Rs.15 billion (Rs.1,500 crore) to pay to Jaiprakash Power,” Gupta said.
Most power companies have huge debt, forcing some of them to explore asset sales. State-run NTPC Ltd, India’s biggest power producer, received 34 proposals for a total of 55,000MW in response to the expression of interest (EoI) it floated early last year to acquire capacity from other producers. It also received around 12 proposals in response to a second EoI in December, but has not announced any deal since.
“Most assets up for sale are good; there is no major technical issue. The issue is valuation,” Sagar said. NTPC, which was planning to buy 8,000-9,000MW of capacity and had earmarked Rs.10,000 crore to fund the purchases, may scrap the plan, Mint reported on Monday.
The power sector has struggled over the last few years to source adequate fuel—coal and, to some extent, gas. Power companies are also faced with the challenge of finding buyers for the power generated as debt-laden state electricity boards are unwilling to purchase expensive power.
Nearly Rs.75,000 crore in loans could be at risk with power projects with a combined generating capacity of 46,000MW facing viability issues due to lack of long-term buyers for electricity, inadequate fuel supply and aggressive bidding to win projects and coal blocks, rating agency Crisil said in a report released on 28 July.
Adani Power, JSW Energy and Tata Power are a handful of buyers who have entered into purchase agreements for power assets in the last one year or more. But with the scarcity of potential buyers, the pace of deals have remained slow.
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