In what is widely seen as a bailout for sibling Naveen Jindal’s steel and power business, industrialist Sajjan Jindal-led JSW Energy has agreed to buy a 1,000-megawatt (MW) power plant of JSPL in Chhattisgarh at an enterprise value of Rs 4,000 crore.
JSW, whose board along with that of JSPL approved the transaction late Tuesday, said the value could rise up to `6,500 crore, if the plant is given fuel linkages, and also manages to enter into long-term power purchase agreements (PPAs).
This will now put the onus on banks and the government as the allotted coal blocks were cancelled following allegations of irregularities in awarding mining leases.
“The valuation of Rs 6,500 crore may look high on the face of it, but it is contingent on two conditions — of 100% fuel security and the PPA…The deal also involves repayment of interest of Rs 500 crore, which will be paid by us after shareholders’ and CCI approvals… As of now, the asset is debt free,” JSW Energy joint MD Sanjay Sagar said.
Naveen Jindal-led JSPL, which had a consolidated debt of around Rs 46,000 crore as on December 2015, has been looking to monetise assets to generate cash flow and cut debt.
The acquisition will also help JSW Energy become a leading private sector power company in India. The company sells its power mostly through spot contracts, which typically adapt changes in prices, unlike long-term contracts, which lock in prices.
In the past, JSW Energy has funded most of its acquisitions by through a mix of debt and equity (mainly in the 75:25 ratio), and a similar approach is likely to be followed this time as well.
“If I were to compare the off-take in fuel, all stressed assets have it...no plant is fully secure,” said JSW Energy finance director Pramod Menon said.
After the acquisition, the aggregate installed and operational power generation capacity of JSW Energy will rise to 5,531 MW.