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Anil Ambani-led Reliance Infrastructure has signed a pact to sell a 49 per cent stake in its Mumbai electricity business to the Public Sector Pension Investment Board ( PSP Investments) of Canada. The deal pegs the enterprise value of the division at Rs 15,000 crore, according people familiar with the contours of the transaction.
Reliance Infrastructure did not disclose the size of the deal but one of those cited above told ET that the Canadian fund will pay around Rs 3,500 crore for the stake, if the deal takes place. The Mumbai circle licence, along with the generation, transmission and distribution asset, will be transferred to a subsidiary, which will then offload the stake. Around Rs 8,000 crore of debt will also be transferred to the subsidiary, the person said.
"This deal will help Reliance Infra substantially reduce its debt byRs 11,500 crore. The deal is subject to approvals but should be closed by March," said an executive involved in the transaction.
The deal will mark the first time a foreign fund is investing in a power distribution business in India. The development comes at a time when the government has initiated its ambitious Ujwal Discom Assurance Yojana ( UDAY) to erase losses at state run power distribution companies to revive the sector.
The two parties have entered into an exclusivity agreement valid until March 31, 2016. In an official statement, Reliance Infrastructure said the proposed transaction is subject to due diligence, definitive documentation, applicable regulatory and other approvals and certain other conditions. The company also said that there can be no certainty a transaction will be executed given that it hinges on terms and conditions.
Approval is needed from the Bombay High Court, the Maharashtra Electricity Regulatory Commission and lenders. Reliance Infrastructure's Mumbai power business distributes electricity to nearly 3 million residential, industrial and commercial consumers in the suburbs of the city, covering an area of 400 sq km, and catering to a peak demand of over 1,800 mw.
The business, often referred to as a "cash cow" by the company's executives, clocked revenue of Rs 7,700 crore in FY15.
The undivided Reliance Industries had acquired the Mumbai power distribution business and related assets from the staterun distribution company BSES and formed Reliance Energy in 2002. The company was renamed Reliance Infrastructure in 2008.
The transaction will help Reliance Infrastructure reduce debt to Rs 5,000 crore from Rs 16,000 crore The deal is a part of the company's strategy to exit businesses such as cement and roads, monetise others and focus on defence. Reliance Group head Ambani is personally steering the defence business.
Separately, Reliance Infrastructure said on Monday that all requisite approvals including that of the Competition Commission of India and the Gujarat Maritime Board have been received for the acquisition of Pipavav Defence and Offshore Engineering Co., which signals the company's entry into defence.
The mandatory open offer to acquire up to 26 per cent in Pipavav Defence from the public at Rs 66 per share will open on December 2 and close December 10. The promoters of Pipavav Defence have sold their 18 per cent holding in the company for Rs 819 crore.
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