The debt-laden Jaypee Group is close to selling two of its three operating hydroelectric projects to a consortium led by Abu Dhabi National Energy Co. PJSC, known as TAQA, and including a Canadian pension fund for at least $1.5 billion, according to two people close to development.
TAQA will buy a 51% stake in the
projects, with a Canadian pension fund purchasing 39% and IDFC
Alternatives Ltd, the private equity arm of infrastructure finance
company IDFC Ltd, taking the remaining 10%, said the two people, who
both spoke on condition of anonymity.
The transaction, which
will raise funds for the Jaypee Group to pare more than Rs.50,000 crore
of debt, could help accelerate consolidation in India’s beleaguered
power sector, burdened by debt, delays in project approvals and fuel
shortages. Slowing economic growth has hit power demand from industrial
consumers in some parts of the country.
“The documentation is in
progress. This will be the first exposure of this large Canadian
pension fund in India,” said one of the people.
The person did not reveal the name of the Canadian pension fund.
It’s
not Canada Pension Plan Investment Board (CPPIB), which forged a $200
million venture with real estate developer Shapoorji Pallonji Group last
month to invest in commercial real estate in India, said the two people
cited earlier. CPPIB took an 80% stake in the venture with Shapoorji
Pallonji holding the rest.
The transaction, one of the largest
hydro power deals in the country, is likely to be signed by this month
end or early next month. The formal closure of the deal, with all
regulatory approvals, may take up to three months, the two people said.
The
Economic Times reported on 9 September that the Abu Dhabi Water and
Electric Authority had emerged as the frontrunner to buy the two power
assets from Jaiprakash Power Ventures Ltd, a part of the Jaypee Group,
and that TAQA will possibly be the vehicle for the acquisition.
The
power plants on the block are the 300 megawatts (MW) Baspa II and
1,000MW Karcham Wangtoo projects located in Himachal Pradesh.
“The
Jaypee Group would be selling its 100% stake in two power plants and
the proceeds would be used for bringing down the debt. This would be a
landmark deal,” said one of the persons cited above.
Originally,
the Jaypee Group wanted to sell off all its three projects, including
the 400MW Vishnuprayag project, but the plant suffered damage in the
cloudburst and subsequent floods that hit Uttarakhand in June.
Consulting
firm EY, formerly known as Ernst and Young, is advising the Jaypee
Group. A spokeswoman for EY declined to comment for this story. Jaypee
Group chairman Manoj Gaur also declined to comment. “We cannot comment
on market speculations,” a TAQA spokesman said. A spokesperson for IDFC
declined to comment.
In September, the Jaypee Group sold its
cement plant in Gujarat to UltraTech Cement Ltd for Rs.3,800 crore as
part of the efforts to reduce debt.
On 4 October, a Jaypee Group
spokesman told that the group was committed to reducing its Rs.56,000
crore of debt by Rs.15,000 crore by end of the current fiscal year. So
far, the group has reduced about Rs.5,300 crore of debt through the sale
of the cement plant and from internal accruals.
TAQA, which
means energy in Arabic, is no stranger to India. Apart from holding a
majority stake in Nagarjuna Construction Co. Ltd’s Himachal Pradesh
power plant, the company also operates a 250MW lignite-based power plant
in the Neyveli region of Tamil Nadu and wants to scale it up to 500MW.
Rival
power producers such as Nagarjuna Construction and Lanco Infratech Ltd
are also in advanced talks with potential strategic and financial
investors to sell majority stakes in their operational power plants as
they seek to reduce debt.
In March, GMR Infrastructure Ltd sold
its 70% interest in GMR Energy (Singapore) Pte Ltd to FPM Power Holdings
Ltd for $600 million.
Nagarjuna Construction is in the process
of reducing its exposure to the power business by selling stakes to one
of the units off Singapore’s Sembcorp Industries. The company has
already signed a definitive agreement with TAQA to sell its entire stake
in Himachal Sorang Power Pvt. Ltd.
Lanco Infratech is in talks
with potential strategic and financial investors to sell its stakes in
three power projects to pare debt. Lanco Infratech had a net debt of
Rs.35,835.4 crore on its books as of 30 September.
In November,
G. Venkatesh Babu, managing director of Lanco Infratech, said the
company management was also considering options such as inviting
strategic investors, disposal of assets, and corporate debt
restructuring.
“One can see a lot of action in the power sector
as far as mergers and acquisitions are concerned; many PE (private
equity) funds and sovereign funds are looking at the Indian power sector
with a lot of curiosity as they feel valuations are attractive,” said
Sanjay Sethi, executive director and head of infrastructure at Kotak
Investment Bank.
In a report released on 18 December, EY said
India needs 15,000-20,000MW of fresh capacity addition every year to
sustain its economic growth, and to achieve this, $230 billion of
investments is needed in the power sector in the next five years.
JPMorgan
Asset Management invested $150 million in the Bhaskar Group’s Diligent
Power Pvt. Ltd (a 2,520MW power portfolio) in May 2013. Singapore-based
Sembcorp is looking to acquire a 100% stake in a 1,320MW coal-fired
project in Andhra Pradesh to double its capacity in India, and French
energy company GDF Suez SA has signed definitive documents to acquire a
74% stake in a 1,000MW coal-fired power project owned by Meenakshi
Energy and Infrastructure Holdings Pvt. Ltd in Andhra Pradesh.
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