Anil Ambani-led Reliance Power has acquired the 1800 MW hydroelectric power assets of Manoj Gaur led Jaypee Group worth over Rs 10,000 crore. On Sunday, a MoU was signed between Reliance CleanGen (RCL), a 100 percent subsidiary of Reliance Power, and Jaiprakash Power Ventures (JPVL), a subsidiary of Jaiprakash Associates (JAL), for the 100 percent acquisition by RCL of the entire hydroelectric power portfolio of JPVL.
If this deal goes through, Reliance Power will become one of the largest provider of hydroelectric power in India's private sector with 7,800 MW operating capacity by end of FY15.
JPVL's portfolio comprises of 3 plants, with an asset life of over 50 years, each using run-of-the-river technology to convert natural water flow to electricity, eliminating the need for a large reservoir. These plants include 300 MW Baspa stage two plant in Kinnaur, Himachal Pradesh, a 400 MW Vishnuprayagn plant Chamoli District, Uttarakhand and 1091 MW Karcham Wangtoo plant in Himachal Pradesh.
Reliance Power has its own hydro electric power projects aggregating over 5,000 MW, however, all under development. On the other hand, JPVL, which was the largest hydro power operator in the private sector, has all operational assets. The generation capacity and size of the assets being acquired would make it the largest M&A deal in India's infrastructure and power sector, for which SBI Capital Markets is acting as advisors for the proposed transaction.
Jaypee Group intends to utilise the entire proceeds of the proposed transaction to reduce its outstanding debt, and thereby deleverage its consolidated balance sheet, said a company statement.
The Jaypee Group had sold its two hydro power projects in Kinnaur district to a consortium led by Abu Dhabi National Energy Company PJSC (TAQA), the international energy and water company from Abu Dhabi, for Rs 10500 crore, but the deal soured.
Debt-ridden Jaypee Power management seems to reassure its investors that there is a Plan B in place. This deal is imperative for JPVL, which is facing huge project cost overruns.
The company has equity commitments of Rs 2,000-2,500 crore just for this year. JPVL's board has already sought extension of approval from shareholders to raise Rs 3,000 crore funds through various options (QIP/ECB with right of conversion into shares / FCCBs/ ADRs/ GDRs/ FPO, preference shares, etc), hitherto valid up to July 2014.
Reliance Power has a debt of Rs 30,000 crore on its books and cash of approximately Rs 3,000 crore. In all likelihood, analysts say, it will have to come to the markets to raise funds for the buyout. However, since all three plants of Jaypee are operational, they should be able to service their debts.
A Reliance Power spokesperson told CNBC-TV18 that there will be no issuance of equity at the company level. The deal, which it expects to close within the next six-months, will be EPS and RoE accretive from day one, he said.
Reliance Power stock price
On July 28, 2014, at 14:10 hrs Reliance Power was quoting at Rs 92.70, up Rs 1.85, or 2.04 percent. The 52-week high of the share was Rs 112.35 and the 52-week low was Rs 60.10.
The company's trailing 12-month (TTM) EPS was at Rs 0.07 per share as per the quarter ended June 2014. The stock's price-to-earnings (P/E) ratio was 1324.29. The latest book value of the company is Rs 60.18 per share. At current value, the price-to-book value of the company is 1.54.
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